Moody's Investors Service downgraded the ratings on 583 tranches in 328 Spanish ABS, RMBS, and CDO transactions to 'A3'  and warned of more downgrades to come.

The move comes on the back of its June 26th ratings downgrade of Spain's country ceiling, which led to a ratings cap of  domestic Spanish issuers backed by Spanish receivables to 'A3'. Spain's ceiling cap resulted from the downgrade of the Spain's government bond ratings to 'Baa3' from 'A3' on June 13.

Moody's noted that the downgrade of various Spanish banks' long-term ratings and the fact that those banks were placed on review for further downgrade on June 25, 2012, exposes Spanish structured finance deals to counterparty risks. the agency said it would  reassess the credit-enhancement levels based on the deteriorating credit conditions in Spain.

Fitch Ratings has likewise employed a similar ratings trajectory. The ratings agency downgraded Spain to 'BBB'/Negative from 'A'/Negative on  June 7, 2012 and this week also announced a ratings cap on Spanish structured finance deals to 'AA-sf' from 'AAAsf'.

Fitch has likewise  revised its outlook on the  Spanish structured finance  transactions to 'Negative Outlook'.

The agency also highlights the counterparty risk inherent in the deteriorating state of Spanish bank ratings. The agency has already downgraded 58 tranches related to 40 Spanish SME CLO transactions to fall in line with its  ratings cap on Spanish SF transactions.

Spanish SME CLO ratings will likely to be further affected by the recent downgrades of Spanish banks if remedial actions are not implemented, the agency said in a press release.

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