The Covered Bond Report

News, analysis, data

OC and issuers key despite Fitch multi-cédulas update

An updated rating methodology for multi-issuer cédulas hipotecarias released by Fitch on Friday contained minor adjustments relative to a previous version, but the rating agency expects any potential rating actions on multi-issuer cédulas hipotecarias to be mainly the result of changes to underlying cover pools or issuer default ratings.

Fitch said that no rating changes result from the update and it does not expect its analyses of future transactions to change “materially”. The update included only two differences to the previous version.

Firstly, the rating agency clarified that when estimating each cédulas hipotecarias issuer’s supporting overcollateralisation (SOC) rates, it applies market value stresses to “the entire non-defaulted portion of the cover pool” in the event of early cancellation of cédulas hipotecarias in order to model the stressed market value of the surviving pool.

The liquidity stresses used in Fitch’s analyses driving the stressed market value have also been changed – although Fitch noted that this does not represent a change to the rating agency’s methodology, but only to the inputs and working stresses in its analyses.

“The particular assumptions that are embedded in the methodology are the same that we had in the older version of the document,” Carlos Terre, director, structured credit at Fitch, told The Covered Bond Report, “but some of the stresses may have changed – they are assessed on an ongoing basis to capture the agency’s forward looking credit view.

“The rating actions on multi-issuer cédulas hipotecarias there have been and you could see in the future will be driven mostly by changes in the underlying cover pools’ default and severity trends, as well as the OC trend (i.e. should an originator decide to issue more covered bonds), and then the migration of the issuer default ratings of the originators (i.e. should a bank have its rating downgraded),” he added.