Moody’s cut three Spanish issuers’ covered bonds in the past 24 hours, junking two issuers’ programmes, in the latest of a series of negative rating actions on cédulas since last week, which analysts say will put ratings and selling pressure on multi-cédulas.

The rating agency today (Thursday) cut Liberbank and Unicaja Banco covered bonds. Liberbank mortgage cédulas were cut from Baa2 to Ba1 [corrected] and Unicaja Banco issuance from A3 to Baa2. Unicaja’s covered bnds remain on review for downgrade. Yesterday Moody’s downgraded Caja Rurales Unidas cédulas to sub-investment grade, from Baa2 to Ba2.

The negative rating actions were caused by downgrades of the issuers’ ratings. The Timely Payment Indicator (TPI) assigned to the covered bond programmes is “improbable”.

The latest three cédulas downgrades from Moody’s take the tally of negative rating actions on cédulas to eight since last week – it has cut seven issuers’ programmes since last Tuesday (2 July) and those of another, Banco Sabadell, on review for downgrade.

Analysts said that the cuts reinforce ratings pressure on multi-cédulas, although the downgraded standalone covered bonds and multi-cédulas generally remain repo eligible with the European Central Bank due to investment grade ratings from other rating agencies.

The rating action on CRU’s covered bonds comes two months after the issuer made its debut on the benchmark covered bond market following a merger that led to the bank’s creation in November. In early May it sold a Eu500m three year cédulas hipotecarias at 290bp over mid-swaps.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that CRU’s covered bonds remain eligible for repo with the European Central Bank due to a BBB rating from Fitch, but that the composite rating is now sub-investment grade.

“As a result, after a total of two months in the index (June and July) it will drop out of the iBoxx Eur Covered Index unless the issuer decides to kick out Moody’s and work with Fitch only or get S&P on board,” he said. “S&P can still rate cédulas up to six notches above the issuer (cédulas are covered bond Category 2 and the pool would have to have an ALMM risk of ‘low’).”

RBS analysts said that they expect the downgrade to junk of CRU’s cédulas to exert pressure on the Spanish covered bond market today, particularly multi-cédulas, a segment that has “significantly” underperformed swaps over the last couple of months. (See chart below.)

The recent cuts will probably force the hand of some investors, said the analysts.

“We believe that the downgrades to junk of several multi-issuers will trigger some forced selling by real money accounts,” they said. “Moreover, most larger covered bond investors base their risk assessment on the underlying within a multi-issuer structure and we expect that many of the rates investors will start selling the bond as soon as the first underlying cédulas is downgraded to junk, even when the respective multi-issuer cédulas remains to be rated at investment grade.”

Cajamar, the predecessor entity/name of CRU, participated in six outstanding multi-cédulas, according to the analysts, one of which is a floating rate note and one of which was retained. Four of the five non-retained deals are already on review for downgrade by Moody’s, they note.

Another analyst said that Liberbank has over Eu4.1bn of cédulas participating in multi-cédulas, bringing the share of double-B rated cédulas in Moody’s rated multi- cédulas to over 26%.

“Hence, downgrade risk for multi-cédulas to sub-investment grade at Moody’s is accelerating,” he said. “With Fitch at BBB for most multi-cédulas series and S&P (with three exemptions) typically even higher (up to AA-), ECB eligibility is not at immediate risk for the majority of the series.”

Fitch downgraded multi-cédulas hipotecarias to sub-investment grade for the first time two weeks ago, cutting four series to BB+sf because of concentration risk and credit deterioration. (See here for previous coverage and/or choose Spain from the country dropdown menu.)

Source: RBS