BBVA yesterday (Wednesday) announced that it is redeeming early two retained cédulas hipotecarias for a total of Eu4.25bn, a move that an analyst said will boost total and eligible OC and could have a positive impact on the covered bonds’ S&P rating.

The bonds that BBVA is amortising early are floating rate notes. One is a Eu2.5bn June 2028 mortgage-backed issue from August 2012 and the other a Eu1.745bn October 2024 issue from October 2011.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that total overcollateralisation (OC) will increase from 119% to 145% as a result of the early amortisation, and eligible OC from 38% to 55%.

The higher OC should not affect Moody’s rating of BBVA cédulas hipotecarias given that it is at the A1 sovereign ceiling, but it could have an impact on Standard & Poor’s rating of the covered bonds, according to Eichert.

S&P upgraded BBVA cédulas hipotecarias from A- to A+ last week alongside positive rating actions on three other Spanish issuers’ covered bonds, and put the rating on CreditWatch positive while it assesses the issuer’s latest cover pool data and OC levels.

“Based on its methodology, S&P could rate the bonds as high as AA,” said Eichert. “Cancelling out retained deals and thus strengthening OC levels is certainly helpful in the context of S&P.”

S&P has, however, consulted on changes to its sovereign ceiling methodology that if implemented as proposed could lead to cédulas downgrades. The rating agency proposed capping certain covered bonds at a maximum of two notches above the sovereign.