Fitch cut cédulas hipotecarias of Cajamar from AA+ to AA yesterday (Monday) following a downgrade of the issuer to BBB+.

The combination of an issuer default rating of BBB+ of Cajamar and a Discontinuity Factor (D-Factor) of 41.2% assigned to its mortgage backed covered bonds means that the covered bonds can be rated A+ on a probability of default basis compared with AA- before the savings bank was downgraded.

A high level of expected recoveries as calculated by Fitch in the event of a default allows the cédulas hipotecarias to be rated AA on a recovery basis, said the rating agency.

Fitch said that for issuers with a short term issuer default rating of at least F2, and in the absence of a public commitment from the issuer regarding overcollateralisation, it relies on the lowest available overcollateralisation over the past 12 months, and this was 222% as of July.

The level of overcollateralisation supporting a AA rating (SOC) stands at 116%, said Fitch, adding that the “Fitch-calculated OC supporting the rating has increased despite the lower rating level due to the application of the revised criteria for analysing Spanish mortgages”.

“In addition, due to the downgrade of Cajamar’s IDR below F1/A, and the issuer’s role as account bank, Fitch has accounted for a potential loss in principal and interest collections due to commingling risk,” it said.