Rating agency Moody's has downgraded close to €50m ($74m) of highly sophisticated debt instruments sold by UBS-owned Elm Financial to ‘junk' status, potentially preceding a broader raft of downgrades to $500m of similarly structured securities.

Moody's cut the ratings on the €47.5m highly structured note, dubbed a constant proportion debt obligation, by eight notches to Ba2 or sub-investment grade last week, the first deal of its kind to lose its investment grade rating.