S&P put six covered bond programmes on negative review on Friday because it considers issuers are not making sufficient progress to meet new counterparty risk criteria by a January deadline, with Hypothekenbank Frankfurt (formerly Eurohypo) Pfandbriefe facing a cut to issuer level.

The covered bonds placed on CreditWatch negative are: Deutsche Postbank Hypothekenpfandbriefe, DSL Briefe, Hypothekenbank Frankfurt public sector and mortgage Pfandbriefe, lettres de gage publiques issued by Erste Europäische Pfandbrief- und Kommunalkreditbank, and Banco Santander Totta obrigações hipotecarias.

It said that the negative rating action is due to the rating agency believing there is an increased likelihood that the programmes will not fully meet updated counterparty risk criteria by 11 January, the end of a transition period that followed the rollout of its new criteria.

S&P had at the end of November warned that it could take such a step (see here for more), and had already taken negative rating actions on some issuers’ covered bonds due to concerns about counterparty risk and the meeting of the January deadline.

“Based on the information received from the issuers, we are currently of the opinion that bank account and commingling risk for five of these programmes is currently not or not fully covered in line with our criteria,” said S&P on Friday. “In addition, we believe one issuer did not yet adequately address derivative-related risks for its programme.”

Totta’s programme is the one affected by S&P’s concerns about derivative risks, while bank and commingling risk are behind the others’ negative review.

Pfandbriefe of Hypothekenbank Frankfurt, the former Eurohypo, could be the worst hit as they face a downgrade of up to six notches.

“In that case, our ratings on both programmes would be capped at the level of the issuer credit rating – ‘A-’ – if no further mitigating measures are implemented,” said S&P.

The rating agency said that it could also cut: the ratings of Deutsche Postbank’s covered bonds by up to two notches, to AA; the DSL Briefe ratings by one notch, to AA+; and the EEPK covered bonds by up to four notches, to A+. Mortgage covered bonds issued by Portugal’s Banco Santander Totta were placed on CreditWatch negative and could be cut by up to two notches, to BB+.