Standard & Poor’s put its AA+ rating of mortgage backed covered bonds issued by Spain’s Ibercaja Banco on CreditWatch negative yesterday (Thursday) after doing likewise with the issuer’s BBB rating last week.

Ibercaja’s announced merger with Banco Grupo Cajatres was cited by S&P in its rating action on the bank.

Ibercaja’s covered bond programme has been assigned to Category 1 under S&P’s methodology and determined to have “low” asset liability mismatch (ALMM) risk, which means that it can be rated up to seven notches higher than the issuer’s rating, and the rating agency considers overcollateralisation levels sufficient for this to be achieved.

The covered bonds have been placed on CreditWatch negative, said S&P, because these seven notches of uplift have already been used, meaning that any negative rating action on the issuer would automatically result in a corresponding downgrade of the covered bonds.