Standard & Poor’s lowered mortgage covered bonds issued by Kutxa and Banca Cívica following a downgrade of the respective issuers, and cut mortgage covered bonds of Banco Popular Español after a downgrade of the sponsor banks.

The rating agency yesterday (Thursday) lowered Kutxa’s covered bonds from AAA to AA+ after the issuer was downgraded from BBB+ to BBB, and those issued by Banca Cívica from AA+ to AA after the bank was lowered from BBB to BBB-.

S&P has Kutxa’s and Banca Cívica’s covered bonds in Category 1 under its methodology and determined a “low” asset liability mismatch (ALMM) risk for each, resulting in a maximum potential uplift of seven notches above the respective issuer ratings. The rating agency has concluded that the overcollateralisation available to support the issuers’ covered bonds can sustain the maximum uplift about the long term ratings.

As the covered bonds already benefitted from a seven notch rating uplift, according to S&P, and based on cashflow information from the issuers, Kuxta’s and Banca Cívica’s covered bonds were downgraded.

Banco Popular Español had its mortgage bonds downgraded from AA+ to AA- after the issuer was downgraded from BBB+ to BBB-.

The covered bonds already benefit from a maximum six notch uplift above the sponsor bank given that S&P has the programme in Category 1 with a “moderate” ALMM classification.

“We do not expect the ALMM risk of the mortgage covered bonds to change in the short term,” said the rating agency. “In our view, an increase of the assets to improve the ALMM classification is unlikely, as the collateral already includes all mortgage loans on Banco Popular Español’s balance sheet.”

It said that in addition, it deemed it unlikely that Banco Popular Español could redeem covered bonds early to the extent necessary to decrease the ALMM risk to allow for a classification of “low”.