S&P upgraded Bankia mortgage-backed covered bonds from BBB to A- yesterday (Wednesday) because of lower asset-liability mismatch risk and higher OC resulting from the early redemptions of retained deals in May and the re-issue of longer dated notes.

The outlook on the cédulas hipotecarias rating is positive, mirroring that on the issuer rating (BB-).

The Bankia covered bond upgrade was announced separately to positive rating actions taken by Standard & Poor’s on five Spanish banks’ cédulas yesterday, which were driven by rating actions on the issuers the week before. (See separate article.)

Bankia’s covered bonds were upgraded as the result of two liability management exercises carried out by the issuer in May.

One was the early redemption of Eu7.5bn of retained floating rate notes due to mature between November 2016 and May 2017 and their replacement, for the same amount, by longer dated cédulas, with maturity dates between May 2013 and 2028.

This reduced the asset-liability mismatch risk to 13.54%, a level that S&P considers “low”. In combination with their classification as a Category 2 programme, this allows the covered bonds to be rated up to six notches higher than the issuer.

The second action behind yesterday’s upgrade is a partial early redemption of a Eu2bn June 2018 cédulas hipotecarias, which increased overcollateralisation from 76.07% to 82.10%, according to S&P.

“We consider that the current level of available credit enhancement is commensurate with all six notches of uplift above the issuer credit rating, while before the level of overcollateralisation was only commensurate with four notches of uplift,” said S&P. “We are therefore raising the rating on Bankia’s mortgage covered bonds to A- from BBB.”