Standard & Poor’s on Friday placed on CreditWatch negative mortgage covered bonds issued by Banco Popular Español because a downgrade of the issuer, which is on negative review, or a possible worsening of S&P’s view of the asset-liability mismatch of its cédulas would automatically trigger a cut of the cédulas, all else being equal.

Banco Popular Español is rated BB+ by Standard & Poor’s, which on 7 August placed the issuer’s long term rating on CreditWatch negative. The issuer’s mortgage backed covered bonds are rated A+, based on an assessment of the asset-liability mismatch (ALMM) in the programme as “moderate”. This classification, in conjunction with the covered bonds being considered a Category 1 programme, allows the cédulas programme to be rated up to six notches higher than the issuer’s long term rating. At A+, the covered bonds’ rating uses the maximum uplift.

However, S&P said that there is a possibility that under its criteria for rating covered bonds it might reclassify its view of the mortgage covered bonds’ ALMM to “high” in six months, based on the maturity profile of the current assets and liabilities in the programme.

“We have placed our ratings on Banco Popular’s mortgage covered bonds on CreditWatch negative,” said the rating agency, “as, all else being equal, any negative rating action on the issuer or a reclassification of the programme’s ALMM risk to ‘high’ would automatically lead to a corresponding rating change on these covered bonds.”