Standard & Poor’s downgraded the rating of Banco Popular Español cédulas hipotecarias yesterday (Wednesday) from BBB+ to BBB following a downgrade of the issuer’s long term credit rating on 12 February from BB- to B+.

Weaker financial and business profiles led to the issuer downgrade.

Under S&P’s methodology Banco Popular’s mortgage backed covered bonds can be rated up to five notches above the issuer rating and at the previous BBB+ rating the cédulas benefited from this maximum possible uplift. The downgrade of the issuer rating therefore resulted in the cut to the covered bond rating.

In addition to cutting the rating, S&P changed the outlook on the cedulas to negative to reflect the issuer’s outlook.

Analysts had been expecting the covered bonds to be cut after the bank downgrade was announced.