Standard & Poor’s cut four Spanish mortgage covered bond programmes yesterday (Tuesday) after having revised its criteria for Spanish RMBS rating single-jurisdiction securitisations above the sovereign foreign currency rating, but upgraded BBVA public sector covered bonds from BBB+ to A-.

Under S&P’s updated methodologies, the highest achievable rating for Spanish mortgage covered bond programmes, given the BBB, stable, rating of Spain, is A. The cédulas hipotecarias (CHs) downgraded to A were those of Banco Bilbao Vizcaya Argentaria (BBVA), CaixaBank and Kutxabank, all from AA-, and Bankinter, from A+. All are on stable outlook.

The outlook on Ibercaja Banco cedulas hipotecarias was changed from positive to stable, while S&P affirmed the ratings of the cedulas hipotecarias of Bankia (at A-, positive), Banco Popular (BBB, negative), and NCG Banco (BBB, stable).

Catalunya Banc mortgage covered bonds, rated BBB-, remain on CreditWatch positive, because S&P believes the acquisition of the issuer by BBVA would have a positive effect on the rating of the covered bonds because of BBVA’s creditworthiness (it is rated BBB, stable). The review will be resolved once the acquisition is finalised, said S&P.

The cédulas hipotecarias changes were driven by S&P’s application of its criteria for rating above the sovereign, which were announced a month ago.

“As per these criteria, we consider covered bonds backed by mortgage assets as having ‘moderate’ sensitivity to country risk,” the rating agency said. “That said, the covered bonds can be rated a maximum of three notches above the rating of the sovereign, unless refinancing risk over a 12 month period is fully addressed by structural features, in which case they could get an additional fourth notch. None of the programs affected by today’s rating action have this risk covered over a 12-month horizon.”

Covered bonds backed by public sector assets are considered by S&P to have a “high” sensitivity to country risk, allowing for a rating up to two notches above the sovereign rating, whereas previously the uplift was limited to one notch, explaining the upgrade of BBVA’s cedulas territoriales (CTs).