Fitch upgraded six multi-cédulas yesterday (Monday) to reflect tighter Spanish mortgage refinancing spreads, downgraded one series because of insufficient liquidity cover, and revised the outlook on 16 series from negative to stable.

The upgrades were from BBBsf to BBB+sf, and affected three AyT series, two InterMoney (IM) Cédulas series, and one Cédulas TDA series:

- AyT Cédulas Cajas Global, FTA Series IV

- AyT Cédulas Cajas Global, FTA Series XVI

- AyT Cédulas Cajas X, FTA, Class A

- Cédulas TDA 5, FTA

- IM Cédulas 2, FTA

- IM Cédulas 7, FTA

The multi-cédulas were upgraded after Fitch reduced the refinancing spreads of mortgage loans in Spain from 755bp to 535bp in a BBBsf stress situation. The tighter refinancing spreads in turn reflect stabilisation in Spain’s economy and banking sector during the last few months, according to Fitch.

“They imply higher modelled recoveries on cédulas hipotecarias assumed to be in default in a given rating scenario, and result in lower over-collateralisation (OC) ratios to support the full payment of interest and principal,” said the rating agency.

Fitch downgraded AyT Cédulas Cajas Global, FTA, Series XII from BBBsf to BBB-sf because it considers that interest due amounts on a one year horizon are not sufficiently covered by liquidity lines. It noted that default expectations for a given multi-cédulas series have risen as a result of higher obligor concentrations brought about by consolidation in the Spanish banking sector.

“While this has generally improved the credit profile of the banks’ cover pools, it also implies higher default expectations on some multi-issuer cédulas hipotecarias (MICH) series with large exposures to particular banks,” said Fitch.

The rating agency revised the outlook on 16 multi-cédulas series from negative to stable to reflect an improvement in the outlook on the sovereign’s rating and the results of a sensitivity analysis conducted by Fitch.

“The test results concluded that these MICH transactions would not see rating changes even if the issuer default ratings of those participating banks that are currently state support-driven are downgraded to their corresponding Viability Ratings,” it said.