Standard & Poor’s has placed on CreditWatch negative the ratings of 43 multi-cédulas transactions, totalling some Eu96bn, after Moody’s last week downgraded five multi-cédulas, moved 52 from on review for downgrade to on review with direction uncertain, and placed two on review for upgrade.

S&P carried out the rating actions yesterday (Wednesday) and said that it will use updated assumptions on credit estimates as well as existing ratings of the issuers and mortgage covered bonds to review whether the available reserve funds or liquidity lines are still commensurate with current ratings.

“Following further deterioration in the creditworthiness of the underlying issuers and the increase in concentration levels in the transactions, due to the ongoing restructuring process in the Spanish financial system, we will conduct an analysis of each transaction,” said the rating agency. “We will determine whether the current levels of credit enhancement, to cover possible interest shortfalls in these 43 transactions, would be sufficient to pay interest on all of their respective bonds to their current rating levels if a cédulas issuer defaults.”

Seven multi-cédulas transactions are not affected by the aforementioned factors, according to S&P, and their ratings were therefore left unchanged.

Moody’s on Friday took multiple actions on multi-cédulas after having downgraded the issuer ratings of the participating banks, with the rating actions also prompted by mergers between stronger and weaker banks that were announced since the rating agency’s last multi-cédulas review in February.

Moody’s said it downgraded five multi-cédulas because of downgrades of some participating issuers and the limitations imposed by the lower ratings of the weakest entities in such series as a result of these cuts.

The change in direction of the rating review for 52 multi-cédulas is the result of a consolidation process between the strongest issuers and some of the weakest ones participating in those series, it said, with the weakest credit links in some multi-cédulas having been strengthened due to mergers. Examples of such mergers, according to Moody’s, are that of BBVA with Unnim, and Caixabank with Banca Cívica.

Moody’s said that despite the consolidation it has changed the review direction to uncertain because there are some participating issuers whose ratings are on review for downgrade and because the Spanish banking system remains under considerable pressure.

“Whether the ratings of some of the 52 series are downgraded will largely depend on the conclusion of the issuer rating reviews,” it said.

The rating agency placed two series on review for upgrade – Cédulas TdA 20, FTA, series A1 and series A2 – because none of the participating issuers are on review for downgrade and because Moody’s believes that the impact of the merger of Caixabank with Banca Cívica is credit positive.

“Moody’s has decided to keep on review for downgrade those series where (i) there is no participating issuer positively affected by the mergers; and (ii) some issuers are on review for downgrade,” it said.

It also noted that the downgrade or potential downgrade to below A3 and/or Prime-1 of some of the parties that act as paying agents, liquidity facility providers or account banks, will activate some replacement triggers within the transactions. Moody’s will therefore monitor the actions that management companies of the multi-cédulas and affected entities take in order to replace or guarantee non-eligible counterparties.