Spain Banks Face Debt Challenge as ECB Cuts Cash, Moody’s Says
Spanish banks may struggle to refinance covered bonds as the European Central Bank’s plan to reduce liquidity supports forces lenders to tap debt markets at record-high yield spreads, Moody’s Investors Service said.
The higher cost of refinancing is a “credit negative development” for covered bond issuers, “especially if the ECB pulls back its support,” Moody’s analyst Tomas Rodriguez-Vigil Junco wrote in a report today. Spanish lenders have about 70 billion euros ($96 billion) of covered bonds coming due in the next two years, the analysts wrote.
Covered bonds are backed by mortgages or public-sector loans and are guaranteed by the issuer. Banks can pledge the assets as collateral for ECB loans at official interest rates, which are typically lower than rates demanded in debt markets.
Spanish Banks rated below A1, the fifth-highest investment grade, face the biggest refinancing burden because they account for about 50 percent of the total mortgage covered bonds due next year, the Moody’s analysts wrote.
To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net
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