Madrid, June 10, 2011 -- Moody's Investors Service announced today that it has downgraded the rating
of all notes issued by IM Sabadell RMBS 3. A detailed list of the
rating actions is provided at the end of this press release.
The ratings of all rated notes were placed on review for possible downgrade
in February 2011 due to the worse than expected performance of the collateral.
RATINGS RATIONALE
Today's rating action takes into consideration the worse-than-expected
performance of the collateral. It also reflects Moody's negative
sector outlook for Spanish RMBS and the weakening of the macro-economic
environment in Spain, including high unemployment rates.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pools, from which Moody's determined the MILAN Aaa
Credit Enhancement (MILAN Aaa CE) and the lifetime losses (expected loss),
as well as the transaction structure and any legal considerations as assessed
in Moody's cash flow analysis. The expected loss and the Milan
Aaa CE are the two key parameters used by Moody's to calibrate its loss
distribution curve, used in the cash flow model to rate European
RMBS transactions.
Portfolio Expected Loss:
Moody's has reassessed its lifetime loss expectation taking into account
the collateral performance to date, as well as the current macroeconomic
environment in Spain. In March 2011, cumulative write-offs
rose to 0.71% of the original pool balance. The share
of 90+ day arrears stood at 0.87% of current pool balance.
Moody's expects the portfolios credit performance to be under stress,
as Spanish unemployment remains elevated. The rating agency believes
that the anticipated tightening of Spanish fiscal policies is likely to
weigh on the recovery in the Spanish labour market and constrain future
Spanish households finances.
Moody's also has concerns over the timing and degree of future recoveries
in a weaker Spanish housing market. On the basis of Moody's negative
sector outlook for Spanish RMBS, the rating agency has updated the
portfolio expected loss assumption to 1.70% of original
pool balance up from 1.16% of original pool balance.
MILAN Aaa CE:
Moody's has assessed the loan-by-loan information to determine
the MILAN Aaa CE. Moody's has increased its MILAN Aaa CE assumptions
to 8%, up from 4.85% at closing. The
increase in the MILAN Aaa CE reflects the exposure second homes (10%)
and loans with an LTV above 80%. In addition, the
lack of information on employment type.
The rating addresses the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and principal with respect of the
notes by the legal final maturity. Moody's ratings only address
the credit risk associated with the transaction. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors.
Linkage to Banco Sabadell
On the 24th of March Moody's downgraded Banco Sabadell from A2/P-1
to A3/P-2. Banco Sabadell acts as servicer, account
bank and swap provider in this transaction. Following this downgrade
the documents require the treasury account to be transferred to a bank
rated at least A2/P-1. In addition Banco Sabadell has to
post eligible collateral under the swap agreement in an account held in
a P-1 rated institution. Banco Sabadell is currrently still
acting as account bank. In addition Banco Sabadell informed Moody's
that it intends to modify the documents so that the treasury account and
the collateral posting will be kept all time in an institution at least
rated A3/P-2 instead of A2/P-1. This modification
increases the linkage in the transaction to Banco Sabadell. The
downgrade of class A notes reflects the revised portfolio loss assumptions
as well as the risk due to this increase linkage to Banco Sabadell.
The rating addresses the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and principal with respect of the
notes by the legal final maturity. Moody's ratings only address
the credit risk associated with the transaction. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors.
TRANSACTION FEATURES
IM Sabadell RMBS 3 FTA closed in December 2008. The transaction
is backed by portfolio of first-ranking mortgage loans originated
by Banco Sabadell secured on residential properties located in Spain,
for an overall balance at closing of EUR 1,440 million. The
securitized mortgage portfolio benefit from a relatively low weighted
average LTV, currently about 58%. 10% of the
portfolio correspond to second homes.
Reserve fund: The reserve fund is not fully funded. Currently
represent 3.28% of the current balance of the notes (92.72%
of its target)
Swap: According to the swap agreement entered into between the Fondo
and Banco Sabadell (A3/P-2)on each payment date:
• The Fondo will pay the interest accrued from the non-written-off
loans plus the yield from the treasury account; and
• Swap counterparties will pay 3 months Euribor plus the weighted
average coupon plus 25 bps over a notional of equal to the outstanding
amount of the notes
For details on the deal structure, please refer to the IM Sabadell
RMBS 3 FTA, new issue reports.
RATING METHODOLOGIES
The principal methodology used in this transaction is Moody's Approach
to Rating RMBS in Europe, Middle East, and Africa published
in October 2009. Other methodologies used in rating this action
were Moody's Updated Methodology for Rating Spanish RMBS published
in July 2008, Cash Flow Analysis in EMEA RMBS: Testing Structural
Features with the MARCO Model (Moody's Analyser of Residential Cash
Flows) published in January 2006 and Revising Default/Loss Assumptions
Over the Life of an ABS/RMBS Transaction published in December 2008.
Moody's also took into account its Rating Implementation Guidance "Global
Structured Finance Operational Risk Guidelines: Moody's Approach
to Analyzing Performance Disruption Risk" published in April 2011.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
Issuer: IM Sabadell RMBS 3
....EUR1411.2M A Certificate,
Downgraded to Aa3 (sf); previously on Feb 8, 2011 Aaa (sf)
Placed Under Review for Possible Downgrade
....EUR14.4M B Certificate, Downgraded
to A3 (sf); previously on Feb 8, 2011 A1 (sf) Placed Under
Review for Possible Downgrade
....EUR14.4M C Certificate, Downgraded
to Ba2 (sf); previously on Feb 8, 2011 Baa3 (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
The ratings have 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 ratings 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 maintaining
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 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
Alberto Barbachano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service takes action on Spanish RMBS issued by IM Sabadell RMBS 3 FTA
