* Bankia, Catalunya Banc and NCG fall deeper into junk
* Covered bond ratings slash rules out issuance
By Aimee Donnellan
LONDON, July 3 (IFR) - Moody's slashed the ratings of three
bailed-out Spanish banks by two notches on Tuesday evening,
sending them deeper into junk territory and raising concerns
that they will be locked out of the public funding market
Moody's cut the rating of Bankia to B1, while the ratings
for Catalunya Banc and NCG Banco were downgraded to B3. All
three's ratings are on negative outlook.
The actions deliver a further blow to the prospects of
Catalunya Banc and NCG gaining access to the capital markets,
and to government's attempts to sell them.
A recent government-commissioned report on the lenders by
investment bank Nomura and consultancy McKinsey suggested
quickly selling Catalunya Banc and NCG Banco before their assets
deteriorate further, two banking sources said.
The downgrade has also dealt yet another blow to Bankia, the
largest of the three banks. It had been hoping to return to the
public market following a mandatory exchange of its hybrids into
equity it undertook earlier this year.
According to a source with an understanding of the Spanish
lender's funding strategy, it had been considering issuing a
covered bond in the third quarter of this year, but DCM bankers
say that this looking more unlikely.
Moody's highlighted all three banks' weak asset quality,
poor profitability levels and challenging restructuring
requirements as the reasons for the downgrades.
The impact on Bankia's potential borrowing costs was plain
to see on Wednesday as its outstanding covered bonds widened by
almost 50bp (according to Tradeweb).
Bankia has been locked out of the market since February
2012, when it sold a two-year EUR500m covered bond at mid-swaps
That issue has been on a rollercoaster ride in the secondary
market, widening to 930bp at its widest level in the summer of
2012. It was bid at mid-swaps plus 252bp on Wednesday.
Issuing covered bonds would have been the trio's obvious
funding option, but the subsequent lowering of their Cedulas
Hipotecarias ratings after the senior downgrades will restrict
the number of investors that are eligible to buy their paper.
Bankia's Cedulas Hipotecarias and Territoriales were cut by
three notches to Ba1 from Baa1.
So far, the downgrade does not yet impact the
ECB-eligibility of these programmes, since at least one
investment-grade rating is still available.
However, analysts at Deutsche Bank and RBS say they expect
these ratings actions to have a material impact on Multi-Cedulas
(Reporting by Aimee Donnellan; Editing by Alex Chambers and