Spanish multi-issuer covered bonds downgraded

hand_sandAfter downgrading the ratings of 30 Spanish banks last week, rating agency Moody's downgraded 58 sets of Spanish multi-issuer covered bonds (multi-cedulas), which are bonds issued from a securitisation of existing Spanish covered bonds.

The rating action on the multi-cedulas was prompted by the downgrades effected by Moody's on the issuers of these bonds following Spain's sovereign debt re-rating.

"The downgrade of the issuers' ratings poses credit risk to the current Spanish multi-issuer covered bonds ratings, from both an expected loss and timeliness payment perspective," the agency said in its announcement.

After Spain was downgraded to Aa2, Moody's reviewed how this would affect Spanish banks.

Although it said that the ratings of the three largest Spanish banks - Banco Santander, BBVA and La Caixa - were unaffected by the re-rating, most other Spanish commercial banks were downgraded as a result.

The deposit and/or senior debt ratings of 30 Spanish banks were downgraded by one or more notches, including downgrades of 15 banks by two notches and five banks by three or four notches.

The outlook on most banks' senior debt and deposit ratings remained negative, reflecting the negative outlook on the sovereign rating and the negative outlook on banks' standalone credit profiles, given the challenging operating environment in Spain.

Moody's noted that the reduced credit strength of the multi-cedulas issuers increases the expected loss on the covered bonds, which is one of the reasons for the downgrade.

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