Madrid, May 21, 2009 -- Substitute public-sector with mortgage, and TPI of Probable-High
with Probable in the review of covered bonds issued by Caja Insular de
Ahorros de Canarias:
"7) Caja Insular de Ahorros de Canarias:
Aaa mortgage Covered Bonds on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A3
long-term debt rating.
Previous rating action: Assigned Aaa on 23 May 2008."
Revised Release follows:
Moody's reviews Spanish covered bond ratings for possible downgrade
Moody's Investors Service has placed on review for possible downgrade
the Aaa ratings of seven programmes of mortgage covered bonds (Cédulas
Hipotecarias or CHs); the Aaa ratings of four programmes of public-sector
covered bonds (Cédulas territoriales or CTs); and the Aaa
ratings of 57 series of Spanish Covered Bonds issued under multi-issuer
covered bond programmes.
The rating actions follow rating reviews taken by Moody's Financial
Institutions Group on the underlying institutions supporting these Covered
Bonds. The reviews reflect Moody's expectations that the asset
quality of Spanish banks will continue to deteriorate, leading to
significantly higher credit losses than previously incorporated in the
ratings and putting a strain on capitalisation.
Pressure on asset quality across all asset classes is coming from the
now deep recession in Spain, which is expected to continue throughout
2009 and into 2010, coupled with very negative prospects for the
labour market and the continued abrupt adjustment in the real estate and
construction sector. The rapid deterioration of most banks' loan
portfolios, which started to become more visible in 2008,
has severely reduced the general loan loss provisions that have so far
protected these banks from losses. While the asset quality deterioration
initially stemmed mostly from exposure to the commercial real estate sector,
other asset classes are now also increasingly affected by the magnitude
and breadth of the recession, thus having an impact on the much
broader banking system. For further information on the rating actions
taken by Moody's Financial Institutions Group, please refer to "Moody's
reviews Spanish banks' ratings" published on 19 May 2009 on www.moodys.com
Moody's aims to conclude the reviews for the vast majority of the
covered bond programmes once the reviews of the issuers' debt ratings
are completed, which is expected to be within the next few weeks.
However, Moody's notes that the review of the covered bond
programmes could be extended if issuers prove their willingness and capability
to enhance their programmes in an effective manner to reduce the refinancing
risk.
REVIEW OF SINGLE ISSUERS' COVERED BONDS
The review of the Aaa ratings of single issuers' covered bond programmes
has been driven by the ratings constraints by timely payment considerations.
Under Moody's rating methodology for Covered Bonds, the ratings
assigned to Covered Bonds are constrained by the combination of the credit
strength of the Issuer and the Timely Payment Indicator (TPI) for the
Covered Bonds. (For further details, please see "Timely Payment
in Covered Bonds following Sponsor Bank Default"). The primary
reason for the TPI constraint is the uncertainty surrounding refinancing
risk following an Issuer default which could diminish the probability
of full and timely payments under the Covered Bonds. This probability
further decreases as the Issuer's rating deteriorates.
As is the case for other Covered Bonds, Spanish Cédulas are
exposed to refinancing risk. This arises following an Issuer default.
When this happens, the Covered Bond must be repaid from the assets
it is backed by. For "bullet bonds", the natural
amortisation of the assets cannot be relied on to repay the bonds.
This means that funds need to be raised against the assets backing the
covered bond, possibly through the firesale of the assets.
The discount on the price achieved to complete this firesale, in
the potentially stressed environment following the default of the bank
that originated these assets, is referred to as refinancing risk.
Although the Spanish Legislation stipulates the redirection of all cash
flows stemming from the CH Cover pool to the CH holders in an insolvency
situation and even stipulates that the insolvency administrator of CHs
should avoid any payment shortfall, there are no legal provisions
ensuring a perfect match between assets and notes. Moreover,
the credit deterioration of mortgage Cover Pools and high concentration
to real-estate developers negatively impacts the liquidity of such
assets and their timely enforcement. For public-sector Covered
Bonds, although the credit deterioration of assets is much less
pronounced, the Legislation has not been modified, unlike
that governing mortgage Covered Bonds, which was amended in December
2007. This means that there is still some uncertainty regarding
the ability of the administrator to raise bridge funding against the Cover
Pool.
Moody's considers that Spanish Covered Bonds entail a certain degree
of refinancing risk. The published TPIs currently assigned to CH
and CT programmes are "Probable" and "Probable-High",
respectively.
Under Moody's methodology, a TPI of "Probable" combined with an
Issuer long-term debt rating below A3 would constrain the rating
of the Covered Bonds to Aa1 or below. CHs issued by entities whose
long-term rating could be downgraded below A3 have been placed
on review for possible downgrade. Similarly, a TPI of "Probable-High"
would also constrain the Aaa ratings of CTs for issuers rated below A3.
Hence those CTs whose issuers could be downgraded below A3 have been put
on review for possible downgrade. The main difference in the rating
impact to Covered Bonds between "Probable" and "Probable-High"
starts for entities rated below Baa2.
In addition, the respective committed levels of over-collateralisation
(OC) for CHs are no longer sufficient under the Expected Loss analysis
for some transactions to maintain their current ratings or even lower
ratings. This also applies for CH programmes which have not been
put on review for possible downgrade, but whose long-term
ratings might be downgraded as low as A3.
If issuers' debt ratings were downgraded below A3, Moody's
would only take into consideration in its analysis amounts of OC regarded
as committed. Moody's currently regards the statutory level
of 25% over the eligible Cover Pool as the committed level of OC.
The rating agency regards OC as committed if the Issuer has a legal obligation
to provide it, either by incorporating it into the terms and conditions
of the notes, or any other type of arrangements making the obligation
irrevocable, as long as the Issuer's rating is below A3,
and legally valid, binding and enforceable by the investors.
Despite the fact that the Spanish CHs benefit from the whole mortgage
Cover Pool as security and thus current OC levels are very high,
nothing prevents the Issuers from issuing further CHs or securitising
large pools either of eligible or ineligible assets, which could
rapidly erode the protection levels. This is proved by the fact
that many issuers are very close to the 25% statutory level compared
with last year. In some cases this threshold has been hit,
which has forced issuers to remedy a breach following the steps enshrined
in the law.
The following Covered Bond programmes of single issuers have been placed
on review for downgrade (in alphabetical order):
1) Banco Pastor, S.A.:
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short-term rating.
Previous rating action: Upgraded to Aaa from Aa3 on 26 July 2006.
2) Caixa Catalunya:
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short-term rating.
Aaa Public-Sector Covered Bonds on review for downgrade.
TPI: Probable-High.
This action follows the review for downgrade of both the A2 long-term
debt rating and P-1 short-term rating.
Previous rating action: Mortgage Covered Bonds upgraded to Aaa from
Aa2 on 11 August 2006.
Public-sector covered bonds assigned Aaa on 12 December 2005.
3) Caixa Galicia:
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of this Issuer's A2
long-term debt rating and P-1 short term rating.
Aaa Public-Sector Covered Bonds on review for downgrade.
TPI: Probable-High.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short term rating.
Previous rating action: Mortgage Covered Bonds assigned Aaa on 4
January 2007.
Public-sector covered bonds assigned Aaa on 18 July 2006.
4) Caja de Ahorros de Valencia, C y A. (Bancaja):
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short term rating.
Previous rating action: Assigned Aaa on 25 January 2008.
5) Caja de Ahorros del Mediterráneo (CAM):
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short term rating.
Aaa Public-Sector Covered Bonds on review for downgrade.
TPI: Probable-High.
This action follows the review for downgrade of the Issuer's A2
long-term debt rating and P-1 short term rating.
Previous rating action: Mortgage Covered Bonds assigned Aaa on 27
June 2008.
Public-sector covered bonds assigned Aaa on 23 January 2008.
6) Caja General de Ahorros de Canarias (debt rating unrated):
Aaa Public-Sector Covered Bonds on review for downgrade.
TPI: unpublished as the issuer is not publicly rated by Moody's.
However due to the credit deterioration of the issuer, Moody's
considers that the rating of its Covered Bond programme may be negatively
affected.
Previous rating action: Assigned Aaa on 22 February 2008.
7) Caja Insular de Ahorros de Canarias:
Aaa mortgage Covered Bonds on review for downgrade. TPI:
Probable.
This action follows the review for downgrade of the Issuer's A3
long-term debt rating.
Previous rating action: Assigned Aaa on 23 May 2008.
8) Cajamar Caja Rural, Sociedad Cooperativa de Crédito
Aaa Mortgage Covered Bonds ratings on review for downgrade. TPI:
Probable. This action follows the review for downgrade of the Issuer's
A2 long-term debt rating and P-1 short term rating.
Previous rating action: Assigned Aaa on 25 June 2008.
REVIEW OF MULTI-ISSUERS COVERED BONDS
Moody's has placed the Aaa ratings of 57 Series of Spanish Covered Bonds
issued under multi-issuer covered bond programmes on review for
possible downgrade. The review was prompted by the credit deterioration
of the participants in these Series, which threatens the Aaa rating
assigned to the Notes, from both an expected loss and timeliness
payment perspective. These rating actions follow the review of
Spanish multi-issuer programmes announced by Moody's on 12
January 2009 when three Series of Notes were put on review for possible
downgrade.
These transactions represent the securitisation of mortgage Covered Bonds
(CHs) issued separately by Spanish entities, which are bought by
a Fund which in turn issues Covered Bonds. Thus, each Series
of Notes is collateralised individually by a pool of Cédulas issued
by the different entities. Each Cédula is backed by the
entire entity's mortgage book.
Some of the older deals benefit from credit protection through a reserve
fund --as the repayment of the subordinated loans which
funded them rank junior to the Series- which provides a certain
element of cross-collateralisation amongst the Cédulas backing
the Series issued by the Funds. Deals since 2005 benefit only from
liquidity facilities to improve the timely payment of interest to cover
payment shortfalls stemming from Cédulas defaulting. However,
there is no cross-collateralisation among the Series benefiting
only from liquidity facilities, or among each individual underlying
mortgage book backing the Cédulas within each Series. Consequently,
as is the case with other Covered Bonds, Moody's considers the Notes
issued under the multi-issuer programmes to be linked to the credit
strength of the underlying issuer, particularly from a timeliness
of payment perspective
Similar to the considerations for Cédulas issued by single issuers,
the respective committed levels of OC for CHs are no longer sufficient
under the Expected Loss analysis for some low rated entities to maintain
the current ratings or even lower ratings. Therefore, Moody's
will only consider committed OC under its analysis for such lower rated
entities.
Moody's also highlights that some participants of Spanish multi-issuer
have not yet been assigned a monitored rating. As part of its continuing
effort to enhance the quality and the accuracy of its covered bond ratings,
Moody's announced in April 2009 that a key criterion in its rating of
covered bonds is for the issuing financial institution to have obtained
a monitored rating. (see press release "Moody's: Covered
bond issuer ratings important for accuracy and stability of covered bond
ratings" dated 30 April 2009).
The Aaa rating assigned to the following Series were put on review for
downgrade:
-1) Series A1 (ISIN: ES0371622004) issued under Programa
Cédulas TDA, FTA. Assigned Aaa on 8 March 2006
-2) Series A3 (ISIN: ES0371622038) issued under Programa
Cédulas TDA, FTA. Assigned Aaa on 23 October 2006
-3) Series A4 (ISIN: ES0371622012) issued under Programa
Cédulas TDA, FTA. Assigned Aaa on 10 April 2006
-4) Series A6 (ISIN: ES0371622020) issued under Programa
Cédulas TDA, FTA. Assigned Aaa on 10 April 2006
-5) Single Series (ISIN: ES0317019000) issued under CÉDULAS
TDA 2, FTA. Assigned Aaa on 26 November 2003
-6) Single Series (ISIN: ES0317043000) issued under CÉDULAS
TDA 3, FTA. Assigned Aaa on 3 March 2004
-7) Single Series (ISIN: ES0317044008) issued under CÉDULAS
TDA 4, FTA. Assigned Aaa on 16 June 2004
-8) Single Series (ISIN: ES0317045005) issued under CÉDULAS
TDA 5, FTA. Assigned Aaa on 29 November 2004
-9) Single Series (ISIN: ES0317046003) issued under CÉDULAS
TDA 6, FTA. Assigned Aaa on 23 May 2005
-10) Single Series (ISIN: ES0317047001) issued under CÉDULAS
TDA 7, FTA. Assigned Aaa on 20 June 2005
-11) Single Series (ISIN: ES0347859003) issued under IM CÉDULAS
2, FTA. Assigned Aaa on 11 June 2004
-12) Single Series (ISIN: ES0347848006) issued under IM CÉDULAS
4, FTA. Assigned Aaa on 11 March 2005
-13) Single Series (ISIN: ES0362859003) issued under IM CÉDULAS
M1, FTA. Assigned Aaa on 2 December 2005
-14) Single Series (ISIN: ES0347784003) issued under IM CÉDULAS
7, FTA. Assigned Aaa on 31 March 2006
-15) Single Series (ISIN: ES0347785000) issued under IM CÉDULAS
9, FTA. Assigned Aaa on 9 June 2006
-16) Single Series (ISIN: ES0349045007) issued under IM CÉDULAS
10, FTA firstly rated Aaa on 21-February-2007
-17) Single Series (ISIN: ES0347567002) issued under IM CÉDULAS
12, FTA. Assigned Aaa on 21 November 2007
-18) Single Series (ISIN: ES0352961009) issued under AyT
Cedulas Cajas, FTA. Assigned Aaa on 20 April 2001
-19) Single Series (ISIN: ES0361002001) issued under AyT
Cedulas Cajas III, FTA. Assigned Aaa on 28 June 2002
-20) Single Series (ISIN: ES0312368006) issued under AyT
Cedulas Cajas IV, FTA. Assigned Aaa on 13 March 2003
-21) Series A (ISIN: ES0370148001) issued under AyT Cedulas
Cajas V, FTA. Assigned Aaa on 4 December 2003
-22) Series B (ISIN: ES0370148019) issued under AyT Cedulas
Cajas V, FTA. Assigned Aaa on 4 December 2003
-23) Series A (ISIN: ES0312360003) issued under AyT Cedulas
Cajas VI, FTA. Assigned Aaa on 7 April 2004
-24) Series B (ISIN: ES0312360011) issued under AyT Cedulas
Cajas VI, FTA. Assigned Aaa on 7 April 2004
-25) Single Series (ISIN: ES0312361001) issued under AyT
Cedulas Cajas VII, FTA. Assigned Aaa on 23June2004
-26) Series A (ISIN: ES0312362009) issued under AyT Cedulas
Cajas VIII, FTA. Assigned Aaa on 18 November 2004
-27) Series B(ISIN: ES0312362017) issued under AyT Cedulas
Cajas VIII, FTA. Assigned Aaa on 18 November 2004
-28) Series A (ISIN: ES0312358007) issued under AyT Cedulas
Cajas IX, FTA. Assigned Aaa on 31 March 2005
-29) Series B (ISIN: ES0312358015) issued under AyT Cedulas
Cajas IX, FTA. Assigned Aaa on 31 March 2005
-30) Series A (ISIN: ES0312342001) issued under AyT Cedulas
Cajas X, FTA. Assigned Aaa on 30 June 2005
-31) Series B (ISIN: ES0312342019) issued under AyT Cedulas
Cajas X, FTA. Assigned Aaa on 30 June 2005
-32) Single Series (ISIN: ES0312213004) issued under AyT
Cedulas Cajas XI, FTA. Assigned Aaa on 27 November 2007
-33) Series I (ISIN: ES0312298005) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 14 December 2005
-34) Series II (ISIN: ES0312298013) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 14 December 2005
-35) Series III (ISIN: ES0312298021) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 14 December 2005
-36) Series IV (ISIN: ES0312298039) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 22 February 2006
-37) Series V (ISIN: ES0312298047) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 14 March 2006
-38) Series VI (ISIN: ES0312298054) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 24 March 2006
-39) Series VII (ISIN: ES0312298062) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 30 May 2006
-40) Series VIII (ISIN: ES0312298070) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 14 June 2006
-41) Series IX (ISIN: ES0312298088) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 25 October 2006
-42) Series X(ISIN: ES0312298096) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 25 October 2006
-43) Series XI (ISIN: ES0312298104) issued under AyT Cédulas
Cajas Global, FTA. Assigned on 20 December 2006
-44) Series XII (ISIN: ES0312298112) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 21 March 2007
-45) Series XIII (ISIN: ES0312298120) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 23 May 2007
-46) Series XIV (ISIN: ES0312298138) issued under AyT Cédulas
Cajas Global, FTA firstly rated Aaa on 23-May-2007
-47) Series XV (ISIN: ES0312298146) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 11 October 2007
-48) Series XVI (ISIN: ES0312298153) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 23 October 2007
-49) Series XVIII(ISIN: ES0312298179) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 4 August 2008
-50) Series XIX (ISIN: ES0312298187) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 20 October 2008
-51) Series XX (ISIN: ES0312298195) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 24 November 2008
-52) Series XXI (ISIN: ES0312298203) issued under AyT Cédulas
Cajas Global, FTA. Assigned Aaa on 15 December 2008
-53) Single Series (ISIN: ES0361005004) issued under AyT.10
Financiación Inversiones. Assigned Aaa on 16 September 2002
-54) Single Series (ISIN: ES0356849002) issued under AyT
Prestige Cajas de Ahorros. Assigned Aaa on 17 March 2003
-55) Single Series (ISIN: ES0312375001) issued under AyT
Financiación Inversiones II Assigned Aaa on 10 December 2003
-56) Single Series (ISIN: ES0312299003) issued under AyT
Financiación Inversiones III. Assigned Aaa on 24 February
2006
-57) Single Series (ISIN: ES0334699008) issued under PROGRAMA
PITCH, FTA. Assigned Aaa on 20 July 2007
Moody's initially analysed and currently monitors these transactions using
the rating methodology for EMEA Covered Bond transactions as described
in the Rating Methodology reports "Moody's Rating Approach to European
Covered Bond", published in June 2005, "Timely Payment in
Covered Bonds following Sponsor Bank Default", published in March
2008 and "Assessing Swaps as Hedges in the Covered Bond Market",
published in September 2008. All can be found on www.moodys.com
in the Credit Policy & Methodologies directory, within the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issue can also
be found in the Credit Policy & Methodologies directory.
The ratings assigned by Moody's address the expected loss posed to investors.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
Madrid
Juan Pablo Soriano
Managing Director
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Jose de Leon
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Correction to text, May 20, 2009: Moody's reviews Spanish covered bond ratings for possible downgrade
