Moody’s upgraded Caixa Geral de Depósitos (CGD) mortgage covered bonds from A3 to A2 yesterday (Thursday) after lifting the issuer’s Counterparty Risk (CR) assessment on the back of approval of a government-backed recapitalisation of the Portuguese bank and restructuring plans.

The issuer’s baseline credit assessment (BCA) and adjusted BCA were raised from b2 to b1 on Wednesday and its CR assessment from Ba1 to Ba2.

The rating actions come after CGD on 10 March announced annual results and key targets for a restructuring plan, while the European Commission approved the plan as well as a government funded recapitalisation.

“In reassessing the bank’s credit profile and ratings, Moody’s anticipates the upcoming completion of the Portuguese government’s (Ba1 stable) recapitalisation totalling Eu3.9bn and the market funded issuance of Eu930m of Additional Tier 1 (AT1) capital instruments (of which Eu500m will be issued in the next weeks),” it said on Wednesday. “The rating agency considers these measures critical to stabilising CGD’s loss absorption capacity, allowing it to execute its structural transformation under the 2017-2020 restructuring plan that aims to restore the bank’s long term profitability and viability.”

Indeed, the bank sold a Eu500m AT1 yesterday in what was the first public Portuguese financial institution bond since 2015.

Moody’s said that, as a result of the higher CR assessment, the covered bond anchor for the programme is one notch higher. It said that, with a Timely Payment Indicator (TPI) of “improbable”, the rating of the covered bonds (obrigações hipotecarias, or OHs) is now constrained at A2, and that the programme includes sufficient overcollateralisation to achieve the new rating.