OREANDA-NEWS. Fitch Ratings has updated its Rating Criteria for multi-issuer Cedulas Hipotecarias (MICH). The report replaces the existing "Rating Criteria for Rating Criteria for Multi-Issuer Cedulas Hipotecarias", dated 6 July 2015. Fitch does not expect any existing ratings to change as a result of this update.

This report describes Fitch's approach for analysing credit risk in Spanish multi-issuer mortgage-covered bonds or "cedulas hipotecarias" (MICH) transactions, which are repackaging of homogeneous CHs issued by banks. The rating analysis in this report is substantially the same as that in the previously published report, with the exception of three changes, which are the magnitude of extraordinary expenses, repayment sources of extraordinary expenses and a new interest rate scenario.

Our assumption of extraordinary expenses is reduced to EUR100,000 for each CH from 0.6% of the CH balance assumed to be in default under scenarios of stress, substantiated with market information collected and analysed by Fitch.

We now view excess spread amounts, and if needed, recovery proceeds obtained after enforcing the cover pool, as available funds to MICH transactions to repay extraordinary expenses on top of liquidity facilities and reserve funds. This expanded computation is supported by the existence of a thin layer of excess spread (around 2 bps of the notional amount) in MICH transactions, and the nature of the recovery claim that would be formulated by the transaction trustee against a defaulted CH. Fitch believes transaction trustees are capable of managing the selection and repayment profile of extraordinary expense if they arise.

Fitch has added a fully stable interest rate scenario to the quantitative tool (MICH model) used to estimate the liquidity needs of MICH transactions in scenarios of CH defaulting. This permanently flat interest rate scenario is in addition to the rising and decreasing stresses and it is fully in line with the agency Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds.