Fitch has placed on negative review multi-cédulas issued by Intermoney Cédulas 1 Grupo Banco Popular because it expects overcollateralisation of mortgage backed covered bonds issued by Banco Popular Español (BPE) to be volatile.

The rating agency yesterday (Tuesday) placed on Rating Watch Negative (RWN) Eu2bn class A notes, which are rated AAsf – the ‘sf’ denoting a structured finance security –to reflect the risk that the multi-cédulas could be downgraded to the single-A ‘sf’ category.

Fitch said that the downgrade risk stems from the probable volatility of the overcollateralisation of cédulas hipotecarias issues sold by BPE, which are repackaged in a collateralised debt obligation of IM Cédulas 1 Grupo Banco Poular FTA.

It said that a short term rating of F2, RWN of BPE suggests that BPE might issue additional cédulas hipotecarias or securitisations that would reduce existing overcollateralisation below the level supporting the prevailing rating of the multi-cédulas.

Fitch said that is not aware of the existence of a minimum overcollateralisation statement issued by BPE, and that it will consider a haircut to the  total overcollateralisation in the range of 25% to 50%, which could lead to a downgrade of the multi-cédulas to the Asf rating category.

The rating agency said that it expects to resolve the RWN status before the end of March together with the negative review of the rest of the multi-cédulas sector, allowing BPE to determine whether it wants to take any voluntary action to support the transaction’s rating, and allowing for time for implementation of any such action.