Overview
- Following implementation of the European Covered Bond Directive into Spanish legislation, we have reviewed our ratings on Abanca Corporacion Bancaria's mortgage covered bonds.
- The program's available credit enhancement remain commensurate with the currently assigned ratings. Additionally, the program has a public commitment to maintain the level of overcollateralization commensurate with the maximum uplift.
- We therefore affirmed our 'AA+' ratings on the covered bond program and related issuance.
- The stable outlook on Abanca Corporacion Bancaria's mortgage covered bonds reflects the stable outlook on our long-term sovereign rating on Spain.
MADRID (S&P Global Ratings) Nov. 17, 2022--S&P Global Ratings today affirmed its 'AA+' credit ratings on Abanca Corporacion Bancaria's mortgage covered bond program and related issuances. The outlook on the ratings is stable.
Following our review of the amended program to comply with the Decree Law that transposes the European Covered Bond Directive into Spanish law, we believe that the Decree Law does not affect our ratings on the existing program. The issuer's overcollateralization level is commensurate with the rating as outlined in our covered bonds criteria, and maintains the overcollateralization commitment published on its website to achieve the maximum collateral-based uplift.
We have updated our credit and cash flow analysis based on the specific adjustments defined for Spain and Portugal under our global RMBS criteria and commercial real estate criteria (see "Related Criteria"). The combined effect of the updated credit quality of the portfolio and the application of our criteria has led to a decline in the collateral credit losses commensurate with the currently assigned ratings.
Our ratings on Abanca Corporacion Bancaria's mortgage covered bond program reflect the application of our covered bonds criteria, our structured finance sovereign risk criteria, and the remaining criteria referenced in the related criteria section below.
Under our sovereign risk criteria, the mortgage covered bonds can be rated up to four notches above the sovereign rating, if there is sufficient overcollateralization to withstand a sovereign default. As the covered bond program meets these conditions, and considering the current foreign currency rating on Spain (A/Stable/A-1; unsolicited), the covered bonds can achieve a maximum potential rating of 'AA+'.
The available credit enhancement in the program continues to support four potential notches of collateral-based uplift above the jurisdiction-supported rating level (JRL). We do not reduce the potential collateral-based uplift because the overcollateralization in the program is committed, and liquidity risk is captured in our sovereign risk criteria by limiting the number of notches of uplift above the sovereign rating to four. Therefore, the maximum collateral-based uplift is four notches above the JRL, leading to a maximum achievable covered bond rating of 'aa+' according to our covered bonds criteria.
Further, the ratings on the covered bonds are not constrained by counterparty, legal, and operational risks, in our view.
As a result of the above, we affirmed our 'AA+' ratings on Abanca Corporacion Bancaria's mortgage covered bond program and related issuances.
The stable outlook on our ratings on the covered bonds reflects the stable outlook on the sovereign. The outlook on the issuer credit rating on Abanca Corporacion Bancaria does not currently affect the outlook on the covered bonds. Because the covered bonds have one unused notch of jurisdictional support, a downgrade of Abanca Corporacion Bancaria by up to one notch would not affect the ratings on the covered bonds, all else being equal. This means that, all else being equal, any rating action on Spain would result in a similar rating action on the covered bonds.
Following implementation of the EU's Covered Bond Directive into Spanish legislation, from July 8, 2022, Abanca Corporacion Bancaria's mortgage covered bond program has been included in the list of covered bond programs authorized by the Bank of Spain. The Decree Law simplifies the Spanish covered bond legal framework: all covered bonds, new and outstanding, will be governed by it. In our view, it enhances transparency and supervision and aligns the Spanish Covered Bond framework to other European frameworks. Although we understand that additional amendments are contemplated to clarify certain provisions of the Decree Law, it supports our view of a very strong legal covered bond framework in Spain.
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Criteria | Structured Finance | RMBS: Global Methodology And Assumptions: Assessing Pools Of Residential Loans, Jan. 25, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | Covered Bonds: Covered Bond Ratings Framework: Methodology And Assumptions, June 30, 2015
- Criteria | Structured Finance | Covered Bonds: Methodology And Assumptions: Analyzing European Commercial Real Estate Collateral In European Covered Bonds, March 31, 2015
- Criteria | Structured Finance | Covered Bonds: Covered Bonds Criteria, Dec. 9, 2014
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Covered Bonds Outlook Midyear 2022: The Meaning Of Higher Interest Rates, July 18, 2022
- Spanish Covered Bonds: Harmonization Achieved Through Royal Decree Law, July 13, 2022
- European Covered Bonds Reach Harmonization Milestone As The Journey Continues, July 12, 2022
- ESG Credit Indicator Report Card: Covered Bonds, April 7, 2022
- Spain-Based Abanca Corporacion Bancaria Upgraded To 'BBB-/A-3' From 'BB+/B' On Improved Earnings Capacity, April 7, 2022
- Abanca Corporacion Bancaria's Mortgage Covered Bond Program Outlook Revised To Stable; Ratings Affirmed, March 28, 2022
- Spanish Covered Bond Market Insights, March 8, 2022
- Transaction Update: Abanca Corporacion Bancaria S.A. (Mortgage Covered Bonds), May 27, 2022
- S&P Global Ratings Definitions, Nov. 10, 2021
- Glossary Of Covered Bond Terms, April 27, 2018
| Primary Credit Analyst: | Maria Luisa Gomez Grande, Madrid + 34 91 788 7208; marisa.gomez@spglobal.com |
| Secondary Contact: | Enrique Rodenas, Madrid; enrique.rodenas@spglobal.com |
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