Standard & Poor’s cut seven multi-cédulas and affirmed the ratings of two on Monday, but RBS analysts said they fear that the relatively high ratings for the asset class from the rating agency may be short-lived. S&P meanwhile today (Wednesday) added Banco Popular Español to those Spanish banks on CreditWatch negative.

The multi-cédulas rating actions from Monday involved S&P cutting three IM Cédulas transactions and four Cédulas TDA transactions. IM Cédulas 3 was cut from AA+ (sf) to A+ (sf), and IM Cédulas 4 and 5 from A (sf) to A- (sf). Cédulas TDA class A1 was lowered from AA- (sf) to A (sf), class A4 from A- (sf) to BBB (sf), class A6 from BBB (sf) to BBB- (sf), and class A5 from A- (sf) to BBB+ (sf).

Cédulas TDA Class A3 and Intermoney Master cédulas were affirmed at A+ (sf).

All of the affected multi-cédulas were removed from CreditWatch Negative, where they were placed on 23 May alongside 36 other multi-cédulas. This week’s rating actions wrap up S&P’s review, after the rating agency on 25 July took rating actions on 12 transactions, and last Thursday on 21 multi-cédulas, with one transaction having redeemed since May.

S&P said Monday’s downgrades reflect an increase in credit risk driven by rating actions that took place in the first half of the year on the issuers participating in the multi-cédulas.

It also said that newly assigned ratings to some cédulas issued by a number of the underlying participants benefitted a few of the transactions, but that this did not lead to upgrades because rising credit and concentration risks outweighed any positives gained from new covered bond ratings.

S&P said that it generally assumes that if a cédulas issuer defaults, a full recovery on the underlying covered bonds and ultimate repayment of their principal would take place, provided the underlying cédulas are sufficiently collateralised.

“Nevertheless,” it said, “based on our latest analysis, we believe the credit enhancement to cover possible interest shortfalls in seven of the nine transactions analysed would not be sufficient to pay interest on all of the bonds to the current rating level if a cédulas issuer were to default.”

RBS analysts said yesterday (Tuesday) that following the latest rating actions by S&P the gap between the ratings of a same multi-cédulas by different rating agencies stands at up to six notches – AyT Cédulas Cajas Global series XXV is rated Baa2 by Moody’s and AA by S&P.

This, said the analysts, clearly shows uncertainty at the rating agencies about how to best consider the quality of the collateral pool (in particular the correct valuation of the mortgages on the books), the impact of a bleak economic outlook, the credit quality of the issuer, and government support, among other aspects.

“We believe that the agencies are in a race to the bottom and fear that S&P will not maintain its relatively high double-A ratings for long,” they said.

All multi-cédulas rated by Fitch carry a BBB(sf) rating, with the rating agency recently saying that it will no longer assign AAA or AA ratings to multi-cédulas using current structures even if Spanish collateral and bank credit quality improves. Moody’s ratings of multi-cédulas range from Baa3 to A3, with A3 being the highest achievable rating for a Spanish covered bond because this is the country ceiling. Moody’s has 53 multi-cédulas on review for downgrade.

S&P separately today placed on CreditWatch with negative implications its BB+ rating of Banco Popular Español and maintained on CreditWatch negative its ratings on Bankia (BB+), Banco Financiero y de Ahorro (B+), and Ibercaja Banco (BBB-). The rating actions reflect S&P’s views on potential implications of state recapitalisation, with the rating agency noting that the CreditWatch negative status mainly reflects uncertainty over how the recapitalisation, if it were to happen, and associated restructuring plan could affect the banks’ business and financial profiles, and thus their standalone credit profiles.