Fitch lowered the rating of Mortgage Covered Securities (MCS) issued by Anglo Irish Mortgage Bank from BBB+ to BBB, and left them on Rating Watch Negative, on Friday, because of the increased difficulty of refinancing Irish and UK commercial mortgage loans such as those in the programme’s cover pool.

“Should a sale of commercial mortgages be required within the 18-month extended maturity period, the agency believes, in a stressed market, Irish and non-standard UK commercial assets will have limited refinancing options,” said Fitch.

The rating agency has, as a result of this, increased the Discontinuity Factor (D-Factor) of the programme from 36.8% to 70%, equivalent to a maximum one notch uplift for the covered bonds’ rating on a probability of default basis over Anglo Irish Mortgage Bank’s issuer default rating. Fitch noted that this is an exception to the usual way in which it determines D-Factors.

Given the issuer’s rating of BB-, the covered bonds can reach a BB rating on a probability of default basis. Three further notches of uplift in the new BBB rating reflect recoveries from the cover pool.

The covered bonds remain on review for downgrade because they are at the maximum possible uplift from the issuer’s rating, which is itself on Rating Watch Negative.