Fitch downgraded 51 classes of multi-cédulas issues today (Thursday), driven by collateralisation rates, but market participants said that the impact of the news on the asset class was muted, even alongside that of the Kingdom of Spain from Aa1 to Aa2 today.

“As far as I can see, things are holding up in the secondary market and they haven’t really been hit too hard,” said one syndicate official. “A couple of basis points widening here and there, but nothing tragic.”

An analyst added: “Spreads will be more driven by headlines on savings banks and details of mergers and not by ratings – at least not as long as they are in double-A territory.”

Fitch cut 50 classes from AAAsf to AAsf and one from AAAsf to AA+sf, with the downgrades relating to 46 transactions. The actions concluded a review of the sector by Fitch.

“CR (collateralisation rate) is the major driver of the downgrades,” said the rating agency. “The agency’s MICH (multi-issuer cédulas hipotecarias) rating methodology is based on the ‘first dollar loss principle’ implying that if the weakest link in the CDO failed in a particular stress scenario, regardless of its participation in the overall transaction it would imply a default of the transaction as a whole under such rating stress. MICH transactions have traditionally comprised CH issued by multiple Spanish financial entities.

“Fitch’s CR analysis includes updated cover pool market value risk assumptions. Market value risk stems from the assumption that in the event of a CH default, the insolvency administrator may be forced to sell cover pool assets at a distressed price in order to meet payments on CHs. This is addressed by applying a refinancing spread that accounts for the cost of funding of a potential buyer plus a profit margin. Fitch has updated the components of the liquidity risk market value discount considering current market conditions and future expectations.”