Posted on the Financial Times Alphaville by Tracy Alloway:
Spain’s multi-cedulas are back — even as their problems may only just be beginning. From The Cover:
A new Eur1.45bn five year issue for AyT Cedulas Cajas is expected to be priced at 160p over mid-swaps this (Tuesday) afternoon, at the tight end of guidance, but towards the wider end of the levels at which the issuer is believed to have been sounded.The AyT Cedulas Cajas issue, arranged by Ahorro Corporacion Financiera, is the first multi-cedulas benchmark since November 2007.
AyT is the biggest player in the Spanish multi-cedula market, apparently having established the general model for the covered bonds. The multi-cedula basically involves repacking smaller sized cedulas issues (mortgage securities) into one big package, providing regional savings banks (cajas) with cheaper funding. Think CDOs, but with the liability staying on the balance sheet of the participating banks.
A big criticism of the structure has been that because the cajas’ combined mortgage books comprise the underlying cover pools, the bonds are rather exposed to the problems of a single institution. For instance, Moody’s placed a series of multi-celudas issued by Caja Castilla-La Mancha and a number of other institutions on review for a downgrade back in January, because of perceived financial difficulty only at Caja Castilla-La Mancha.
Here’s Covered Bond Investor on the subject:
On the other hand, the Moody’s rating action in Spain illustrates the maxim that a chain is no stronger than its weakest link. This is not a fatal flaw in the potentially useful joint issuance structure, but it underscores the need for a participating institution to be very choosy about who its “partners” are.
The partners in that AyT issue, in case you’re wondering, are Caja Espana, Caixa Penedes, Caja Cantabria, Caja Insular de Canarias, Bancaja, Caja de Ahorros del Mediterraneo, Sanostra, Caja Granada and Caja Burgos.
Let’s hope the chain holds.