The cédulas of eight Spanish issuers could be upgraded by S&P as a result of an upgrade of the sovereign last week, according to analysts, with potential for improved regulatory treatment for some. Fitch has meanwhile upgraded four multi-cédulas programmes upon improvements in credit quality.

S&P upgraded Spain from BBB+ to A- on Friday evening, citing continuously strong economic performance in the country, supported by a solid current account surplus and ongoing budgetary consolidation. S&P had been scheduled to review Spain’s rating and the upgrade was widely expected, with Fitch also having lifted the sovereign to A- in January.

In April 2017, S&P placed nine Spanish covered bond programmes on positive outlook, reflecting a positive outlook on Spain’s rating. The programmes affected are the cédulas hipotecarias of Abanca, Bankia, Bankinter, BBVA, CaixaBank, Cajamar Caja Rural, Deutsche Bank SAE, Ibercaja and Kutxabank. The rating agency said at the time that an upgrade to the sovereign rating would result in upgrades to eight of the programmes, all else being equal, with another – that of Abanca – to benefit from an upgrade only if the bank were upgraded.

“Our ratings on these nine Spanish covered bond programmes have either unused notches for jurisdictional support, when determining the jurisdiction-supported rating level (JRL) under our covered bonds criteria, or are constrained by our structured finance ratings above the sovereign criteria (RAS criteria), or are affected by both of these factors,” it said.

Writing before the sovereign upgrade was confirmed, analysts at Commerzbank said any upgrade would be good news for the cédulas market.

“For several programmes this would imply an upgrade into the double-A segment, which typically receives preferential regulatory treatment,” they said. “In those cases where the crucial rating from a regulatory perspective comes from S&P, this could thus also trigger positive market effects.

“For instance, the cédulas of Bankinter and Kutxabank would benefit from improved risk weights and LCR classification in the case of an upgrade. For investors not considering DBRS and/or Scope, further issuers would be added.”

Ratings of selected Spanish covered bonds with an S&P rating

Source: Rating agencies, Commerzbank

S&P maintained its positive outlook on Spain’s rating.

Also on Friday, Fitch upgraded four multi-cédulas transactions – AyT Cédulas Cajas Global VIII from BBB to A, Programa Cédulas TDA A4 from BBB to A-, IM Cédulas 7 from A to A+, and IM Cédulas 10 from A- to A.

Maureen Schuller, head of financials research at ING, noted that the AyT Cédulas Cajas Global and Programa Cédulas TDA series consequently move to a more favourable second best rating bucket, to Credit Quality Step 2, which she said is “a performance positive”.

The upgrades primarily reflect improvements in credit quality of multi-cédulas portfolios in recent months, Fitch said, driven by various changes to participating bank ratings.

“For example, the latest change reflects the merger by absorption of Banco Mare Nostrum by Bankia made effective in January 2018,” it said.

The rating agency also affirmed the ratings of 14 multi-cédulas and removed one series, Programa Cedulas TdA 4, from Rating Watch Positive and assigned it a positive outlook.