Fitch lowered the ratings of Bank of Cyprus and Cyprus Popular Bank covered bonds backed by Greek assets from BB+ to BB on Friday, but affirmed their covered bonds backed by Cypriot assets at BBB-.

The rating actions followed a Fitch downgrade of Cyprus from BBB- to BB+ on 25 June and subsequent downgrades of the issuers. All the covered bonds have been removed from Rating Watch Negative.

The ratings of Cyprus Popular Bank’s Programme I, backed by Greek assets, and Bank of Cyprus’s Greek cover pool programme are capped at the same level as the issuers’ ratings (BB) under Fitch’s methodology, with Greece’s country ceiling being B-.

The D-Factors of the Cypriot programmes have been raised to 100% following the downgrade of Cyprus to sub-investment grade. The ratings of the programmes on a PD basis are therefore equalised with the issuers’ IDRs and any rating uplift only given on a recovery basis.

“Bank of Cyprus (Cypriot Pool) and Cyprus Popular Bank (Programme II) covered bonds benefit from an uplift of two notches above the IDR, when giving credit for recoveries post an assumed default of the covered bonds,” said Fitch. “Such level of expected recoveries is based on the issuers’ commitment to an increased Asset Percentage (AP) of 90% and 89%, respectively.”

The rating agency said that, all else being equal, a downgrade of an issuer’s IDR will lead to an equivalent downgrade of their covered bonds.