Standard & Poor’s lowered Banco Popular Español cédulas hipotecarias from A- to BBB yesterday (Thursday), with one notch of the downgrade resulting from an increase in the rating agency’s assessment of ALMM risk in the programme.

S&P cut the Spanish bank’s rating from BB to BB- on Monday and, all else being equal, analysts had said that this would result in a downgrade of the covered bonds from A to BBB+.

However, the rating agency increased the asset-liability mismatch risk (ALMM) measure for the programme from “moderate” to “high”, which lowered by a notch the maximum achievable rating for the covered bonds under S&P’s framework.

“Our analysis of the covered bonds shows that asset-liability mismatch (ALMM) risk has increased, exceeding 30%, a level we consider ‘high’ according to our criteria,” it said. “The heightening of ALMM risk has decreased, to four notches from five, the maximum potential uplift above the issuer credit rating that we use to derive the covered bond rating.”

The covered bonds are on negative outlook, reflecting the negative outlook on the issuer. All else being equal, a further downgrade of the issuer would lead to a downgrade of the cédulas. S&P added that the negative outlook reflects the possibility it could cut the covered bonds’ rating if the performance of the mortgage book continues to deteriorate.