Fitch has cut cédulas hipotecarias issued by Banco Mare Nostrum from A- to BBB+ and removed them from Rating Watch Negative (RWN) after downgrading the issuer.

The rating agency on Friday lowered the bank’s issuer default rating from BBB- to BB+, thereby resolving a RWN, and yesterday (Tuesday) followed suit with a downgrade of the cédulas hipotecarias.

The covered bonds’ rating is based on a Discontinuity Factor (D-Factor) of 70%, in line with all Spanish mortgage programmes, and the issuer’s rating, with two notches uplift for recoveries.

The rating also takes into account a cap on the ratings of cédulas hipotecarias on a probability of default (PD) basis – at the long term issuer default rating of the Spanish sovereign (BBB) – to stress Fitch’s view that any refinancing could only take place with the intervention of the Spanish authorities because of the lack of any protection against liquidity mismatch in Spanish mortgage covered bond programmes.

The nominal level of overcollateralisation is 143% and 66% is the level of OC supporting the uplift of two notches to BBB+, according to Fitch, with Banco Mare Nostrum publicly committing to keep a minimum OC of 123%.

“All else equal, this level of rating may be maintained as long as BMN’s IDR is rated at least BB,” said Fitch.