Fitch upgraded Banesto mortgage covered bonds from BBB+ to A on Friday, aligning the rating with that of cédulas hipotecarias issued by Banco Santander, which has absorbed all assets and liabilities of Banesto through a merger.

The merger was completed on 6 May, and has led to a combined mortgage cover pool of around Eu81bn as of March, with around Eu40.7bn cédulas hipotecarias outstanding in aggregate as of Friday, according to Fitch.

The rating agency on Friday also affirmed at A cédulas hipotecarias issued by Santander, on negative outlook. The Banco Español de Crédito (Banesto) mortgage covered bonds had been on Rating Watch Positive. Fitch transferred the Banesto covered bond ratings to Santander, and withdrew the bank’s issuer default rating.

The A rating of the former Banesto cédulas hipotecarias and Santander’s is based on the long term issuer default rating of Santander (BBB+), a Discontinuity Cap (D-Cap) of 0 (for full discontinuity risk), and an 89% overcollateralisation level relied on by Fitch.

The A rating of the cédulas hipotecarias could be downgraded if Santander’s issuer rating were cut by at least one notch or if the overcollateralisation levels relied upon for the rating fall below a 76% breakeven level calculated by Fitch, said the rating agency.

Fitch’s rating actions come after Moody’s on 16 May withdrew “for organisation” its ratings of mortgage and public sector covered bonds (A3) previously issued by Banesto and transferred them to the bonds as assumed by Banco Santander following the merger.