S&P yesterday (Tuesday) cut six Spanish standalone covered bond programmes and 15 multi-cédulas to new sovereign ceilings of BBB for cédulas territoriales and AA- for mortgage backed cédulas after last Wednesday (10 October) cutting Spain by two notches to BBB-.

Cédulas hipotecarias issued by five banks were cut to AA-: those of CaixaBank, Barclays Bank, Kutxabank, Ibercaja Banco, and Deutsche Bank. Kutxabank’s and Ibercaja Banco’s cédulas had been rated AA, while the others were rated AA+.

Cédulas territoriales issued by Banco Bilbao Vizcaya Argentaria (BBVA) were downgraded from A- to BBB.

Standard & Poor’s assigned a negative outlook to five of the six standalone cédulas programmes to reflect the negative outlook on the sovereign, with the rating of Ibercaja Banco’s cédulas hipotecarias remaining on CreditWatch negative to reflect the status of the rating of the issuer.

Six AyT Cédulas Cajas Global series, AyT Cédulas Cajas IV, five Cédulas TDA series, IM Cédulas 15, IM Cédulas 1 Group Banco Popular, and Cédulas Grupo Banco Popular 3 were also downgraded to AA- by S&P.

Yesterday’s rating actions are the result of Standard & Poor’s applying its criteria for rating non-sovereign issuers and structured finance transactions, including covered bonds, above the rating on the related sovereign in the euro-zone.

According to these covered bonds considered to have high country risk exposure can typically only be rated one notch higher than the rating of the country in which the cover pool assets are located. Covered bonds with low country risk exposure, in turn, can be rated up to six notches above the sovereign, if it is rated investment grade; if the sovereign’s rating is in the speculative grade category the maximum uplift is five notches.

The covered bond downgrades come after S&P on Monday cut 11 Spanish banks, noting that the sovereign downgrade had direct negative rating implications for those banks that were rated higher than Spain and for those banks where the rating agency factored in extraordinary government support into the ratings in the form of uplift over the banks’ standalone credit profiles (SACPs).

Florian Eichert, senior covered bond analyst at Crédit Agricole, noted that the impact of lower issuer ratings should lead to a one notch downgrade of cédulas hipotecarias issued by Banco Popular, which were already rated lower than the new sovereign ceiling.