This sounds like a sure thing (not).
What appears to be the lowest-rated Spanish covered bond ever is in the pipeline, after Moody’s on Tuesday assigned a provisional A1 rating to the cedulas hipotecarias of CajaSur. From what we can tell (using our non-existent Spanish skills), the agency emphasised “the sturdiness of the Spanish legal framework” that protects such cedulas — a type of covered bond backed by mortgage loans — in its decision to assign the provisional A1 rating. For context, A1 ratings still count as investment grade, but cedulas tend to be rated around the triple-A or double-A bracket.
Ratings of cedulas tend to be linked to those of their issuing banks, but, as specialist publication The Cover notes, this particular cedula’s rating might have been higher — if it weren’t, err, for the fact, that the deal’s actually backed by some pretty risky stuff:
However, it is possible that the CajaSur’s cover pool has prevented its cedulas hipotecarias from being better rated. According to Moody’s, the total cover pool comprisises 47.9 % commercial mortgage loans related to real estate developers, land acquisition and other commercial purposes with the other 52.1% being residential mortgages.
Given, what appear to be some looming problems for Spain’s mortgage market, we’re amazed that these types of issues are happening.
Related links:
Bienvenido multi-cedula – FT Alphaville
Forget Latvia, what about Spain? – FT Alphaville
Los Covered bonds, por favor – FT Alphaville