Approximately EUR 4.6 billion of debt securities affected
London, 11 September 2009 -- Moody's Investors Service announced today that it has downgraded the ratings
of:
- all the notes issued by Madrid RMBS I, FTA (Madrid RMBS
I)
- all the notes issued by Madrid RMBS II, FTA (Madrid RMBS
II), except the most senior outstanding A2 notes, which maintain
a Aaa rating
- all the notes issued by Madrid RMBS III, FTA (Madrid RMBS
III)
- Last rating action date for Madrid RMBS I, Madrid RMBS
II and Madrid RMBS III: 5 June 2009
Today's rating action was prompted by the prolonged deterioration and
worse-than-expected performance of the collateral backing
the notes. The downgrades also reflect Moody's negative sector
outlook for Spanish RMBS and the weakening of the macro-economic
environment in Spain, including the expected increase in unemployment
rates projected for 2009 and 2010.
Madrid RMSB I, II and III closed in November 2006, December
2006 and July 2007 respectively. The transactions are backed by
portfolios of first-ranking mortgage loans originated by Caja Madrid
(A1/P-1) and secured on residential properties located in Spain.
Pool balances at closing were EUR 2 billion, EUR 1.8 billion
and EUR 3.0 billion in Madrid RMBS I, II and III respectively.
At closing the collateral consisted of loans with loan-to-value
ratios (LTV) over 80%. These high LTV loans represent over
94% of the outstanding pool balance in all three transactions as
of June 2009. The pools are concentrated in the region of Madrid,
representing 70%, 67% and 56% of current pool
balance in Madrid RMBS I, II and III respectively. A significant
share of the securitised mortgage loans has been originated via regulated
brokers, representing about 50% of current pool balance in
all three transactions at the end of June 2009. Currently,
between 37% and 40% of the portfolio balance in the three
Madrid RMBS transactions corresponds to loans granted to non-Spanish
nationals. Concentrations of loans originated via regulated brokers
and loans granted to non-Spanish nationals are among the risk characteristics
that result in higher credit enhancement requirement for a given rating
under Moody's updated methodology for rating Spanish RMBS.
Moody's had already taken action on the three deals in November
2008. The asset performance has continued to deteriorate so much
that the transactions are currently performing outside of Moody's
revised expectations as of the latest review. Moody's observed
that cumulative write-offs (loans either being declared as defaulted
by the originator or being overdue for more than 6 months) have increased
between two to five times since Moody's last rating review, when
cumulative write-offs stood at 3.19%, 4.64%
and 2.98% in Madrid RMBS I, II and III respectively
(data as of end of September 2008). The cumulative write-offs
are currently equal to 11.4%, 13.3%
and 13.2% of the original portfolio balance in Madrid RMBS
I, II and III respectively (data as of end of July 2009).
The 90+ delinquencies (excluding outstanding write-offs) correspond
to approximately 4.15%, 4.33% and 4.67%
of the current portfolio balance in Madrid I, II and III respectively.
Moody's performed a loan-by-loan analysis of all delinquent
and written-off loans in the three Madrid RMBS. This analysis
highlighted that loans originated to non-Spanish borrowers have
a significantly greater write-off rate than loans originated to
Spanish nationals. In Madrid II and III, the write-off
rate for loans granted to non-Spanish national (calculated as the
written-off loan amount divided by original pool balance of loans
originated to non-Spanish borrowers) is between 6 to 7 times the
write-off rates of loans granted to Spaniards. Coincidently,
loans originated via regulated brokers are experiencing significantly
higher write-offs than loans originated by Caja Madrid's
branches. The write-off rate of broker originated loans
is about 3 times higher that the write-off rate of mortgage loans
originated by Caja Madrid. This analysis also highlighted that
loans in negative equity (i.e. loan where the outstanding
debt is exceeding the indexed property value according to Moody's
estimations) show a write-off rate between 1.5-2
times higher than the write-off rate of loans which are not in
negative equity. In Madrid RMBS I, about 18% of the
mortgage pool is currently in negative equity, compared to 15%
in Madrid RMBS II and 30% in Madrid RMBS III.
The rapidly increasing levels of delinquent and written-off loans
have resulted in the full depletion of the reserve funds and build-up
in unpaid Principal Deficiencies Ledgers (PDL) in all three Madrid RMBS
transactions. According to the latest investor cash flow statements
released in late August, unpaid PDLs currently stand at EUR43.1m,
EUR52.1m and EUR145.2m. Unpaid PDLs currently exceed
the size of the Class E notes in Madrid I, and the Class E and D
in Madrid RMBS II and III. Moody's anticipates that the weakening
of the economic conditions will continue to cause high arrears and write-offs.
Available funds in both transactions will ultimately increase as recoveries
from written-off loans are collected. However, the
pace at which loans are moving from arrears into write-offs suggests
that current unpaid PDLs will not be completely cured. The amortization
of the mezzanine and junior notes is likely to remain sequential as a
consequence of the breach of pro-rata amortization triggers.
Additionally, the increase in the volume of loans being written-off
has resulted in the breach of the interest deferral triggers in Madrid
RMBS II and Madrid RMBS III. Interest deferral triggers on junior
notes in Madrid RMBS I have not been breached at this stage. Interest
payments on the Class E in Madrid RMBS II and Class E and D in Madrid
RMBS III were diverted to pay down senior notes as of the last interest
payment date.
Moody's has revised its loss expectation for Madrid RMBS I, II and
III to reflect the collateral performance to date as well as Moody's negative
outlook for the Spanish housing market, in the context of a weakening
macro-economic environment. Following an updated loan-by-loan
analysis, and on the basis of the performance experienced by the
portfolio so far, Moody's has updated the portfolio's expected loss
assumption from a range of 2.4%-3.0%
to 7% of original balance in Madrid RMBS I and II and 8%
of original balance in Madrid RMBS III. Moody's has also assessed
loan-by-loan information for the outstanding portfolios
to determine the credit support consistent with target rating levels and
the volatility of the distribution of future losses. As a result,
Moody's has revised its MILAN Aaa credit enhancement (MILAN Aaa CE) assumptions
to 22% for all three Madrid RMBS transactions. The loss
expectation and the Milan Aaa CE are the two key parameters used by Moody's
to calibrate its loss distribution curve, which is one of the core
inputs in the cash-flow model it uses to rate RMBS transactions.
The current available credit enhancement for the Aaa classes (including
subordination and reserve fund and taking into consideration the amount
of unpaid PDLs) is equal to 12.1%, 11.2%
and 6.0% in, respectively Madrid RMBS I, II
and III as at the latest investor cash flow statements released in August.
In Madrid RMBS II and III, Class A2 and A3 amortise sequentially.
However, sequential amortization reverts to pro-rata if the
outstanding amount of loans more than six months in arrears exceeds 25%
of the original notes balance. The ratio of written-off
loan balance to the original notes balance is currently at 7.9%
and 9.4% in Madrid RMBS II and Madrid RMBS III respectively.
Moody's considers the risk of breaching this trigger in Madrid RMBS III
to be no longer commensurate with a Aaa rating. Given the higher
seasoning and relatively better credit performance of Madrid RMBS II collateral,
Moody's expects Class A2 to be repaid in priority to Class A3 in
most of the default scenarios, and therefore maintains Aaa rating
for the Class A2.
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transaction. Other risks have not been
addressed, but may have a significant effect on yield to investors.
LIST OF DETAILED RATING ACTIONS
Issuer: MADRID RMBS I, FONDO DE TITULIZACION DE ACTIVOS
....EUR1340M A2 Certificate, Downgraded
to A1; previously on Jun 5, 2009 Aa1 Placed Under Review for
Possible Downgrade
....EUR70M B Certificate, Downgraded
to Ba1; previously on Jun 5, 2009 A1 Placed Under Review for
Possible Downgrade
....EUR75M C Certificate, Downgraded
to Caa2; previously on Jun 5, 2009 Baa2 Placed Under Review
for Possible Downgrade
....EUR34M D Certificate, Downgraded
to C; previously on Jun 5, 2009 Ba2 Placed Under Review for
Possible Downgrade
....EUR21M E Certificate, Downgraded
to C; previously on Jun 5, 2009 B1 Placed Under Review for
Possible Downgrade
Issuer: Madrid RMBS II Fondo de Titulizacion de Activos
....EUR936M A2 Certificate, Confirmed
to Aaa; previously on Jun 5, 2009 Aaa Placed Under Review for
Possible Downgrade
....EUR270M A3 Certificate, Downgraded
to A1; previously on Jun 5, 2009 Aa2 Placed Under Review for
Possible Downgrade
....EUR63M B Certificate, Downgraded
to Ba1; previously on Jun 5, 2009 A2 Placed Under Review for
Possible Downgrade
....EUR67.5M C Certificate, Downgraded
to Caa2; previously on Jun 5, 2009 Baa2 Placed Under Review
for Possible Downgrade
....EUR30.6M D Certificate, Downgraded
to C; previously on Jun 5, 2009 Ba3 Placed Under Review for
Possible Downgrade
....EUR18.9M E Certificate, Downgraded
to C; previously on Jun 5, 2009 B3 Placed Under Review for
Possible Downgrade
Issuer: Madrid RMBS III FONDO DE TITULIZACION DE ACTIVOS
....EUR1575M A2 Certificate, Downgraded
to Aa2; previously on Jun 5, 2009 Aaa Placed Under Review for
Possible Downgrade
....EUR497M A3 Certificate, Downgraded
to A3; previously on Jun 5, 2009 Aa2 Placed Under Review for
Possible Downgrade
....EUR55.5M B Certificate, Downgraded
to B1; previously on Jun 5, 2009 A2 Placed Under Review for
Possible Downgrade
....EUR90M C Certificate, Downgraded
to Ca; previously on Jun 5, 2009 Baa2 Placed Under Review for
Possible Downgrade
....EUR72M D Certificate, Downgraded
to C; previously on Jun 5, 2009 Ba2 Placed Under Review for
Possible Downgrade
....EUR52.5M E Certificate, Downgraded
to C; previously on Jun 5, 2009 B3 Placed Under Review for
Possible Downgrade
Moody's initially analysed the transactions referred to in this press
release using the rating methodology for Spanish RMBS transactions as
described in the report "Moody's Approach to Rating Spanish RMBS:
the 'Milan' Model", March 2005, and it monitors the performance
of the transaction using rating methodologies described in the reports
"Moody's Updated Methodology for Rating Spanish RMBS", July 2008,
and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction",
December 2008. These reports can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
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.
London
Barbara Rismondo
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Carole Bernard
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Downgrades several Spanish RMBS notes issued by Madrid RMBS I, II and III
