Fitch Ratings has placed four Multi-Issuer Cedulas Hipotecarias (MICH) series on Rating Watch Negative (RWN) and three on Rating Watch Evolving (RWE) A full list of rating actions is below.

The Rating Watches follow material legal developments in the Spanish covered bonds framework.

KEY RATING DRIVERS

New Covered Bond Framework: The rating actions reflect the possible effects on MICH ratings from Spain Decree-Law 24/2021, which entered into force on 8 July 2022, transposing the European Covered Bonds Directive and impacting all outstanding and future Spanish mortgage covered bonds (cedulas hipotecarias; CH). The updated framework includes important developments for CH like the introduction of mandatory 180-day liquidity protection, improved governance, or the possibility of maturity extensions.

Under the new regime, mortgage cover pools will include a specific selection of assets instead of comprising the entire non-securitised loan book of the issuer as per the prior law, which is likely to lead to large reductions in over-collateralisation (OC) ratios across MICH participating banks (see What Investors Want to Know: Spanish Cedulas dated 20 June 2022 at www.fitchratings.com for more details).

Limited Information: Fitch has requested but not yet received information from trustees about the changes in cover pools and CH structural features as a consequence of the new legal framework affecting the MICH analysis. Some of the most relevant data needed to update our analysis are the cover pool perimeter defined by each CH issuer, changes (if any) to CH maturity profiles, and the specific assets held within the liquidity buffer.

We will resolve the Rating Watches when we have received and analysed more detailed information. The RWN on four MICH series indicates the possibility of affirmation or downgrade at the end of the assessment as these series are already at the 'A+sf' maximum achievable rating in line with Fitch's MICH Rating Criteria. The RWE on the remaining three series indicates that ratings could be upgraded, affirmed or downgraded at the end of the assessment, as these series are rated below the 'A+sf' MICH sector cap.

Obligor Concentration Risk: Five MICH series are exposed at least to one CH issuer representing 33% or more of the underlying CH portfolios in volume terms. The maximum achievable rating for these concentrated MICH transactions is equal to the resolution reference point of this issuer (equivalent to its Issuer Default Rating (IDR) plus two notches of resolution uplift) plus one or two notches of uplift depending if the lag between the scheduled and legal maturity date of the series is three years or more. Unicaja Banco S.A. (BBB-/Stable/F3) and Caixabank S.A. (BBB+/Stable/F2) are the largest obligors in three and two of the affected series, respectively.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

The notes that are already rated 'A+sf' are at the maximum achievable rating for MICH series as per Fitch's MICH Rating Criteria, therefore cannot be upgraded.

If the relied-upon OC of the banks is higher than the supporting OC levels for the higher rating scenarios.

For Programa Cedulas TDA Series A5, Programa Cedulas TDA Series A6 and Cedulas TDA 6, an upgrade of Unicaja's IDR could lead to an upgrade of the MICH notes, as the ratings are credit linked to the bank's rating, reflecting obligor concentration risk.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

For any MICH rating, if the relied-upon OC of the banks falls below the supporting OC levels for the corresponding rating scenario.

For Programa Cedulas TDA Series A5, Programa Cedulas TDA Series A6 and Cedulas TDA 6, a downgrade of Unicaja's IDR could lead to a downgrade of the MICH notes, as the ratings are credit linked to the bank's rating, reflecting obligor concentration risk.

For AyT CCG Series 13, a downgrade of Caixabank's IDR could lead to a downgrade of the MICH notes, as the rating on this series is credit linked to the bank's rating, reflecting obligor concentration risk.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

SOURCES OF INFORMATION

The principal sources of information used in the analysis are described in the Applicable Criteria.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

The ratings on Programa Cedulas TDA Series A5, Programa Cedulas TDA Series A6 and Cedulas TDA 6 are credit-linked to Unicaja Banco S.A.'s Long-Term IDR, reflecting the large obligor concentration risk. The rating on AyT CCG Series 13 is credit-linked to Caixabank S.A.'s Long-Term IDR, reflecting the large obligor concentration risk.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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