OREANDA-NEWS. Fitch Ratings has affirmed six Spanish mortgage covered bond programmes (Cedulas Hipotecarias, CH) and one Spanish public sector covered bond programme (Cedulas Territoriales, CT) as follows:

Abanca Corporacion Bancaria, S. A.'s (Abanca; BB+/Stable/bb+) CH at 'BBB+'

Bankia, S. A.'s (Bankia; BBB-/Stable/bbb-) CH at 'A'

Banco Mare Nostrum S. A.'s (BMN; BB/Stable/bb) CH at 'BBB+'

Caja Laboral Popular Cooperativa de Credito's (CLCC; BBB+/Stable/bbb+) CH at 'A+'

Cajamar Caja Rural, Sociedad Cooperativa de Credito's (Cajamar; BB-/Stable) CH at 'BBB' and CT at 'BBB-'

Banco Santander, S. A's (Santander; A-/Stable/a-) CH at 'AA'

The Outlook on the ratings of all programmes is Stable, reflecting the Stable Outlook on the banks' Issuer Default Ratings (IDR).

KEY RATING DRIVERS

All six Spanish CH programmes have an IDR uplift of at least one notch, reflecting the covered bonds' exemption from bail-in and Fitch's view that Spain is a covered bond-intensive jurisdiction for mortgage covered bonds. In the case of Bankia and Santander, the issuers are considered systemically important in their domestic market, so an additional IDR uplift is granted to these programmes. Cajamar's CT programme does not benefit from an IDR uplift as Spain is not considered by Fitch as a public sector covered bond-intensive jurisdiction.

Fitch continues to assign an overall Discontinuity Cap (D-Cap) assessment of 0 notches (full discontinuity risk) to all Spanish CH programmes and the CT programme it rates. This is driven by the liquidity gap and systemic risk component, given the hard bullet profile of the covered bonds and the lack of specific liquidity protection mechanisms in the Spanish framework to bridge temporary shortfalls after the recourse to the cover pool has been enforced. The risk assessments of the other D-Cap components remain unchanged since the last sector review and are: asset segregation - low risk; system alternative management - moderate high risk; cover pool specific alternative management - moderate high risk (CH)/ moderate (CT); and privileged derivatives - very low.

All Spanish programmes benefit from high recovery expectations in the event of a covered bond default. They have sufficient OC to support more than 91% recoveries, leading to a two - to three-notch recovery uplift, depending on whether the tested rating on a probability of default (PD) basis is in the investment grade or non-investment grade category.

The breakeven OC for a corresponding rating scenario is largely driven, for most Spanish CH programmes, by the asset disposal loss component that is influenced by the large maturity mismatches between assets and liabilities creating heavy refinancing needs under a liquidation scenario. This component is also influenced by the high refinancing spreads of 375bps-550bps applied by Fitch in its analysis of Spanish CHs. The cover pool's credit loss is also an important contributor to break-even OC and reflects that the Spanish CH cover pools still contain a fairly high proportion of commercial and developer loans.

Abanca CH

The rating of Abanca's CH is based on the bank's IDR of 'BB+', an IDR uplift of one notch, a D-Cap of 0 notches and the 177.2% OC that Fitch takes into account in its analysis, which provides more protection than the 49.0% 'BBB+' breakeven OC. This level of OC is adequate for a two-notch recovery uplift on the CH assumed to be in default in a 'BBB+' rating scenario.

The 'BBB+' breakeven OC is driven by the asset disposal loss component of 32.7%, followed by the cover pool's credit loss of 26.0% in a 'BBB+' rating scenario.

Bankia CH

The rating of Bankia's CH is based on the bank's IDR of 'BBB-', an IDR uplift of two notches, a D-Cap of 0 notches and the 77% OC that Fitch takes into account in its analysis, which provides more protection than the 70.0% 'A' breakeven OC. This level of OC is adequate for a two-notch recovery uplift on the CH assumed to be in default in a 'A' rating scenario.

The 'A' breakeven OC is driven by the asset disposal loss component of 42.8%, followed by the cover pool's credit loss of 28.4% in a 'A' rating scenario.

BMN CH

The rating of BMN's CH is based on the bank's IDR of 'BB', an IDR uplift of one notch, a D-Cap of 0 notches and the 66.7% OC that Fitch takes into account in its analysis, which provides more protection than the 44.5% 'BBB+' breakeven OC. This level of OC is adequate for a three-notch recovery uplift on the CH assumed to be in default in a 'BBB+' rating scenario.

The 'BBB+' breakeven OC is driven by the asset disposal loss component of 30.9%, followed by the cover pool's credit loss of 25.5% in a 'BBB+' rating scenario.

CLCC CH

The rating of CLCC's CH is based on the bank's IDR of 'BBB+', an IDR uplift of one notch, a D-Cap of 0 notches and the 167.5% OC level that Fitch takes into account in its analysis, which provides more protection than the 50.0% 'A+' breakeven OC. This level of OC is adequate for a two-notch recovery uplift on the CH assumed to be in default in a 'A+' rating scenario.

The 'A+' breakeven OC is driven by the asset disposal loss component of 34.1%, followed by the cover pool's credit loss of 21.6% in a 'A+' rating scenario.

Cajamar CH

The rating of Cajamar's CH is based on the bank's IDR of 'BB-', an IDR uplift of one notch, a D-Cap of 0 notches and the 126.7% OC level that Fitch takes into account in its analysis, which provides more protection than the 38% 'BBB' breakeven OC. This level of OC is adequate for a three-notch recovery uplift on the CH assumed to be in default in a 'BBB' rating scenario.

The 'BBB' breakeven OC is driven by the asset disposal loss component of 27.8%, followed by the cover pool's credit loss of 26.4% in a 'BBB' rating scenario.

Santander CH

The rating of Santander's CH is based on the bank's IDR of 'A-', an IDR uplift of two notches, a D-Cap of 0 notches and the 136.2% OC that Fitch takes into account in its analysis, which provides more protection than the 74.5% 'AA' breakeven OC. This level of OC is adequate for a two-notch recovery uplift on the CH in a 'AA' rating default scenario.

The 'AA' breakeven OC is driven by the credit loss component of 46.8%., followed by the asset disposal loss component of 34.4%.

Cajamar CT

The rating of CRU's CT is based on the bank's IDR of 'BB-', an IDR uplift of 0 notches and a D-Cap of 0 notches and the 42.8% OC level that Fitch takes into account in its analysis, which is the legal minimum and is also Fitch's 'BBB-' breakeven OC. This level of OC is adequate for a three-notch recovery uplift on the CH in a 'BBB-' rating default scenario.

The 'BBB-' breakeven OC is driven by the asset disposal loss component of 31.6%, influenced by the high level of refinancing spreads assumed by Fitch (1,016 bps for a 'BBB-' rating), followed by the cover pool's credit loss of 17.4% in a 'BBB-' rating scenario. The weighted average default rate reflects the large proportion of loans to Spanish municipalities (48.6%), for which Fitch assumes a 'CCC' rating.

RATING SENSITIVITIES

Abanca Corporacion Bancaria, S. A. (Cedulas Hipotecarias, CH)

The 'BBB+' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the Issuer Default Rating (IDR) is downgraded by one or more notches to 'BB' or below; or (ii) the IDR uplift is reduced to zero; or (iii) the overcollateralisation (OC) that Fitch considers in its analysis decreases below Fitch's 'BBB+' breakeven level of 49.0%.

Bankia, S. A. (CH)

The 'A' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BB+' or below; or (ii) the IDR uplift is reduced to one or zero; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'A' breakeven level of 70.0%.

Banco Mare Nostrum S. A. (CH)

The 'BBB+' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BB-' or below; or (ii) the IDR uplift is reduced to zero; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'BBB+' breakeven level of 44.5%.

Caja Laboral Popular Cooperativa de Credito (CH)

The 'A+' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BBB' or below; or (ii) the IDR uplift is reduced to zero; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'A+' breakeven level of 50.0%.

Cajamar Caja Rural, Sociedad Cooperativa de Credito (CH)

The 'BBB' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'B+' or below; or (ii) the IDR uplift is reduced to zero; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'BBB' breakeven level of 38.0%.

Banco Santander S. A. (CH)

The 'AA' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'BBB+' or below; or (ii) the IDR uplift is reduced to one or zero; or (iii) the OC that Fitch considers in its analysis decreases below Fitch's 'AA' breakeven level of 74.5%.

Cajamar Cajarural, Sociedad Cooperativa de Credito (Cedulas Territoriales, CT)

The 'BBB-' covered bond rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by one or more notches to 'B+' or below.

If the OC that Fitch considers in its analysis drops to the legal minimum requirement of 25% for CH, it would not be sufficient to allow 91% recoveries on any of the Spanish CH programmes. As a result, the covered bond rating would likely be downgraded by at least one notch because this level of OC would limit the covered bond rating to one notch above the IDR as adjusted by the IDR uplift. The relied-upon OC of the CT rated by Fitch is already at the legal minimum of 42.8% as the issuer's Short-Term rating is 'B' and Fitch views the programme as dormant.

The Fitch breakeven OC for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven OC to maintain the covered bond rating cannot be assumed to remain stable over time.