Moody’s upgraded 12 Spanish covered bonds on Friday after raising the Timely Payment Indicator for cédulas because it considers that factors such as a stabilising economy and improved funding conditions have lowered the refinancing risk for Spanish covered bonds.

Moody’s lifted the Timely Payment Indicator (TPI) by one step, from “improbable” to “probable”, citing improvements in the Spanish economy, which it said is stabilising, and in funding conditions for Spanish banks, which has strengthened market liquidity.

In addition, the rating agency also noted that Spanish issuers have maintained high levels of overcollateralisation (OC) “despite the deleveraging of their balance sheets and/or transfer of assets by some issuers to Sociedad de Gestión de Activos procedentes de la Reestructuración (SAREB)”.

Recent legal changes reflecting the systemic importance of covered bonds also contributed to Moody’s raising the TPI, according to the rating agency. It cited the development of transparency rules on cover pool assets, the transfer of underperforming cover pool assets to SAREB, and “a clearer legal framework at the national level that improves the restructuring and orderly wind-down of Spanish entities”.

The higher TPI reflects Moody’s view that the refinancing risk for Spanish covered bonds is lower than before, and prompted a range of rating actions, the bulk of which were upgrades of 12 cédulas programmes. (See below for a list.)

The upgrades were by one notch, lifting out of sub-investment grade mortgage and public sector cédulas issued by Bankia and cédulas hipotecarias issued by Liberbank (from Ba1 to Baa3), and into single-A territory covered bonds of Colonya Caixa d’Estalvis de Pollenca (from Baa1 to A3).

Moody’s also confirmed the rating of Ibercaja Banco mortgage cédulas, at Baa1, and changed the review placement on UniCaja mortgage and public sector cédulas (Baa2) from on review for downgrade to direction uncertain. These ratings were on review for downgrade because of the review of the issuer rating.

The rating agency said that covered bonds rated at the country ceiling (A3) were not affected by the improved TPI.

Source: The Covered Bond Report, Moody’s