Fitch yesterday (Monday) downgraded all 44 classes of multi-cédulas that it rates from A-sf to BBBsf, on negative outlook, while Moody’s cut the long term debt ratings of 28 Spanish financial institutions by between one and four notches.

Fitch said that its multi-cédulas downgrades were driven by changes to refinancing spread assumptions it uses to estimate the marked-to-market haircut on the performing part of a cover pool of a defaulted cédula hipotecarias that needs to be sold to redeem the cédulas. The cuts follow a Fitch downgrade of Spain to BBB, negative outlook, earlier this month and the subsequent downgrade of several Spanish banks participating in the multi-cédulas sector.

“Refinancing spreads are volatile in the current market environment,” said the rating agency. “Fitch has therefore assigned a rating category to the sector without notch differentiation between transactions, and has also applied refinancing spreads ranging from 790bp to 850bp under BBBsf stress scenarios.”

Fitch said that although credit enhancement is provided by reserve funds in a small number of the multi-cédulas, it decided not to differentiate the ratings of these classes because the level of credit enhancement is relatively small compared with the sensitivity to other analytical assumptions such as refinancing spreads, prepayment rates and recovery rates.

The full list of multi-cédulas can be found here.

The rating agency noted that the rating actions were not driven by material changes to overcollateralisation ratios of participating banks, which were dealt with in rating actions in May.

Moody’s downgrades of 28 Spanish financial institutions came after the rating agency cut the sovereign’s rating from A3 to Baa3 on 13 June and left it on review for further downgrade. The rating agency cited two main drivers for the rating actions: its assessment of the reduced creditworthiness of the Spanish sovereign, which affects its ability to support banks and weighs on their credit profiles; and its expectation that the banks’ exposure to commercial real estate will likely cause higher losses, which might increase the chance that they will need external support.

However, Moody’s said that it viewed favourably broad support measures being introduced by the Spanish government to support its banking system and that it will review the impact of upcoming recapitalisations when more details are known.

The only covered bond issuers left rated higher than the sovereign were Banco Santander and Santander Consumer Finance, which are rated Baa2, on review for downgrade.

“The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign’s rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios,” said Moody’s. “All the rest of the affected banks’ standalone ratings are now at or below Spain’s Baa3 rating.”

The full list of rating actions can be found here.