Moody’s cut Banco de Valencia covered bonds from Ba2 to Ba3 today (Tuesday), after downgrading the issuer rating to Caa1, outlook developing, on Friday, and said that implementation of proposed changes to modelling assumptions could negatively affect the cédulas rating.

Banco de Valencia

The rating agency on Friday lowered Banco de Valencia’s rating to reflect “the higher risk for senior creditors arising from the fact that this entity will go through an orderly resolution process as expressed in the Royal Decree 24/2012”.

Banco de Valencia is owned by the Spanish government’s Fund for Orderly Bank Restructuring (FROB), and is categorised as a Group 1 institution under a Memorandum of Understanding signed by euro-zone members in July. The issuer had been rated B3, on review for downgrade.

Moody’s assigns a Timely Payment Indicator (TPI) of “improbable” to the cédulas hipotecarias.

The rating agency noted that on 21 August it released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions, which are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions.

“If the adjusted approach is implemented as proposed, the rating of the notes affected by today rating action may be negatively affected,” it said.