Lower asset-liability mismatch risk for NCG Banco mortgage-backed covered bonds allowed Standard & Poor’s to yesterday (Tuesday) affirm the cédulas hipotecarias at BBB+ despite the rating agency having downgraded the Spanish bank last Thursday.

S&P cut NCG Banco from BB- to B+ last week on concerns about the implications of its privatisation, with its ownership changing hands from the Spanish government to Venezuelan banking group Banesco.

All else being equal, the downgrade of the issuer would have led to a cut of its cédulas hipotecarias, as their rating incorporated the maximum potential uplift above the issuer rating under S&P’s methodology. The covered bonds had been placed on CreditWatch negative in December to mirror the negative review action on the issuer shortly beforehand.

However, the asset-liability mismatch (ALMM) risk for the covered bonds has decreased since S&P’s last review, according to the rating agency, to “low”, which increases the maximum potential uplift above the issuer rating by one notch, to the maximum of six for programmes considered as Category 2 under S&P’s criteria.

The rating agency said the credit enhancement available to support NCG Banco’s covered bonds is commensurate with this maximum uplift, and therefore yesterday affirmed their rating at BBB+. The rating is on negative outlook to reflect that on the issuer rating.