Standard & Poor’s cut Banco Popular Español’s rating from BB to BB- yesterday (Monday), with analysts expecting a one notch downgrade of its cédulas hipotecarias to BBB+ to follow.

Banco Popular was downgraded to BB-, and left on negative outlook, because of an underperformance in asset quality and ongoing significant deterioration.

“The negative outlook primarily reflects our view of the challenges the new management team faces containing the negative impact on the bank’s financial profile, and specifically on capital, of the weak economic environment,” said the rating agency.

According to Florian Eichert, senior covered bond analyst at Crédit Agricole, the cédulas hipotecarias are in category 2 under S&P’s methodology, and have an asset-liability mismatch risk (ALMM) of “moderate”. The previous covered bond rating took advantage of the full five notches of uplift available to the issuer given this combination, meaning that the lower issuer rating will have to drag down the cédulas rating by one notch, too, said Eichert.