EUR747.6M of debt securities affected
Madrid, October 08, 2010 -- Moody's Investors Service has today assigned a rating to the notes to
be issued by Madrid Activos Corporativos IV, F.T.A
(the Fondo):
....EUR747.6M Bonos Series A Notes,
Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The notes to be issued by the Fondo are static balance-sheet collateralised
loan obligation (CLO) backed by a EUR1,099.4 million par-value
euro-denominated loan portfolio. Caja de Ahorros y Monte
Piedad de Madrid (Caja Madrid, A1/P-1, negative outlook)
originated the portfolio assets.
At closing, the Fondo -- a newly formed limited liability entity
incorporated under the laws of Spain -- will issue one class of rated
notes and will also enter into a loan agreement to finance the purchase
of the loans (at par) from the Caja Madrid. Caja Madrid will act
as Servicer of the loans for the Fondo, while Ahorro y Titulización
S.G.F.T., S.A. will be
the Management Company ("Gestora") of the Fondo.
As of 5 of October 2010, the loans portfolio comprised 46 loans
granted to 32 parent companies. Of the underlying asset pool,
53% are project finance loans and 47% are corporate loans.
The top 1, 2 and 5 obligors represent together approximately respectively
15%, 24% and 42% of the portfolio. While
geographically, the pool comprises of Spanish loans, it is
mostly concentrated in the "Energy: Electricity" sector (49%)
and "Utilities: Electric" sector (27%).
The Aaa (sf) rating reflects the transaction's credit strengths,
including: (i) a 15% reserve fund;(ii) a hedge agreement
(combination of a basis swap and fixed-floating rate swap) mitigating
the interest-rate risk between the assets and liabilities (the
notes pay three-month EURIBOR plus 50 bps); (iii) a liquidity
line mitigating any frequency mismatch between the interest received and
accrued on the loans (the accrued interest being due by the Fondo under
the swap agreement); ; and (iv) a back-up servicing agreement,
under which the originator will identify a back-up servicer if
Caja Madrid is downgraded below Baa3.
However, Moody's believes that the transaction has several credit
weaknesses: (i) high obligor concentration; (ii) high exposure
to the "Energy: Electricity" industry; (iii) of
all the debtors, only 14% have public ratings; and (iv)
an 18% exposure to the Spanish photovoltaic renewable energy sector
(solar PV sector). In Moody's view, there is heightened
regulatory uncertainty in relation to the solar PV sector, which
is illustrated by recent speculation around a potential retrospective
change to feed-in tariffs. For correlations and recovery
rates, Moody's used specific assumptions for the project-finance
loans. The recovery rate Moody's used for project --finance
loans was 65%. The asset correlations were: (i) 20%
for debtors in the solar power renewable sector; (ii) 20%
for debtors in the wind-power renewable sector; (iii) 35%
for debtors in the Coal/Gas power electricity sector; (iv) 35%
for debtors in the Energy-LNG sector; and (v) 20% for
debtors in the large infrastructure sector.
The cross-sector correlation assumptions are: (i) 7%
between solar-power renewable and wind-power renewable;
(ii) 7% between solar-power renewable and Coal/Gas power-electricity;
and (iii) 7% between wind-power renewable, and wind
and Coal/Gas power-electricity. Moody's used its standard
corporate asset correlation assumptions to account for correlation between
loans to project finance and corporate entities.
The resulting key assumptions of Moody's analysis for this transaction
are as follows:
- The average portfolio default probability after stresses is 19.1%
(including a 30% default-probability stress, forward-looking
adjustments and a two-notch haircut of the largest credit estimates
representing 30% of the pool), consistent with a Ba3 for
the weighted-average life of the portfolio;
- An average pair-wise asset correlation of 18.4%
- An average mean recovery rate of 50.9%
- A weighted-average life of 9.56 years
The principal methodologies used in rating Madrid Activos Corporativos
IV CLO Notes were "Moody's Approach to Rating the CDOs of SMEs in Europe"
published in Feb 2007, and "Moody's Approach to Rating Collateralised
Loan Obligations" published in August 2009. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
As mentioned in its methodology, Moody's used its CDOROM model (to
derive the securitised portfolio's default distribution),
combined with a cash-flow model to determine the potential losses
incurred by the notes under each loss scenario. In parallel,
Moody's also considered non-modelled risks, such as commingling,
set-off and counterparty risk.
Moody's Investors Service received and took into account one or
more third party due diligence report(s) on the underlying assets or financial
instruments in this transaction and the due diligence report(s) had a
neutral impact on the rating.
The V Score for this transaction is Medium/High, which is in line
with the score Moody's assigns to the Spanish SME sector and global
cash-flow CLO sector. Nonetheless, Moody's notes
that some additional elements of volatility were assessed for the additional
complexities of the project finance loans and the current regulation issues
on photovoltaic projects. V-Scores are a relative assessment
of the quality of available credit information and of the degree of dependence
on various assumptions used in determining the rating. For more
information, the V-Score has been assigned accordingly to
the report "V Scores and Parameter Sensitivities in the EMEA Small-to-Medium
Enterprise ABS Sector" published in June 2009 and the report "V Score
and Parameter Sensitivities in the Global Cash Flow CLO sector",
published in July 2009.
Moody's also ran various stressed scenarios, including (i) a downgrade
to Caa2 of the solar power project finance loans (such event being weighted
by a probability of up to 30%), and (ii) a downgrade to Caa2
of the two largest portfolio credit estimates. Under these various
tests, the model-indicated rating of the Notes was not affected
by more than one notch.
Moody's also ran sensitivities on the key parameters for the rated notes.
For instance, if the assumed default probability of 19.1%
used in determining the initial rating changed to 47.9%
and the recovery rate of 50.9% changed to 32.9%,
the model-indicated rating for the class A notes would change from
Aaa (sf) to Baa2 (sf).
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information and confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's will monitor this rating. Any change in the rating will
be publicly disseminated by Moody's through normal print and electronic
media in accordance with Moody's standard practice at the time.
For further information please visit Moodys.com or contact Moody's
London client service desk on +44 (0) 20 7772-5454.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Javier Hevia Portocarrero
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Lisa Goldbaum
Senior Vice President
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
Moody's Assigns Aaa (sf) Rating To Madrid Activos Corporativos IV'S CLO Notes
