Moody’s downgraded nine series of multi-cédulas yesterday (Thursday), prompted by its lowering of the ratings of Spain’s Bankia and NCG Banco.

The issuer downgrades, of Bankia from Baa2 to Baa3 and NCG from Baa3 to Ba1, negatively affected the multi-cédulas through their effects on Moody’s expected loss analysis and timely payment considerations.

Any downgrade of an issuer’s ratings will increase the expected loss on the covered bonds under Moody’s methodology, which then affects the expected loss on the multi-cédulas, as their expected loss is primarily determined by the weighted average expected loss of the covered bonds backing them.

Moody’s has said issuers may be able to offset increased expected loss by adding further collateral to cover pools or restructuring programmes. But given the large amounts of additional collateral that would be necessary to be consistent with current rating levels over and above the statutory levels, the rating agency would only give limited value in its analysis for voluntary overcollateralisation held by the issuers.

Moody’s said that the amount of liquidity and/or reserve funds for the multi-cédulas may no longer be consistent with their original ratings, since this depends on the ratings of the participating issuers, some of which have been downgraded. This is incorporated into ratings under Moody’s timely payment analysis.

Irrespective of the size of the reserve or the liquidity facility, Moody’s limits the maximum rating uplift of multi-cédulas over and above the rating of the weakest issuers within a series. For callable multi-cédulas, the limitation is at the single A level if one of the participants is rated below investment grade. For non-callable multi-cédulas, the limitation is at the single A level if the weighted average rating of the participants is below investment grade.

The multi-cédulas have been revised as following:

• Cédulas TDA 5 from Aa3 to A1
• AyT Cédulas Cajas X series A from Aa3 to A1
• AyT Cédulas Cajas X series B from Aa3 to A1
• AyT Cédulas Cajas XI from Aa3 to A1
• AyT Cédulas Cajas Global series X from Aa3 to A1
• AyT Cédulas Cajas Global series XIII from Aa3 to A1
• AyT Cédulas Cajas Global series XX from A1 to A2
• AyT Cédulas Cajas Global series XXV from Aa2 to Aa3
• AyT Prestige Cajas de Ahorros from Aa3 to A2

The multi-cédulas will remain on review for downgrade, like all Spanish multi-cédulas, as Moody’s reviews the impact of mergers among participants.