London, 20 June 2013 -- Moody's Investors Service has today downgraded by one notch the junior
tranche of BBVA Empresas 5 and upgraded by three to four notches the ratings
of the junior and mezzanine tranches of BBVA Empresas 3 and BBVA Empresas
6. At the same time, Moody's confirmed the ratings
of six tranches (rated from B3 (sf) to A3 (sf)) of BBVA Empresas 3,
BBVA Empresas 4, BBVA Empresas 5 and BBVA Empresas 6. While
increased counterparty risk and exposure to borrower concentration triggered
the downgrade of the junior tranche of BBVA Empresas 5, sufficient
credit enhancement, which protects against sovereign and counterparty
risk, primarily drove the rating upgrades and confirmations.
Today's rating action concludes the review for downgrade initiated
by Moody's on 02 July 2012. The four transactions are Spanish
asset-backed securities transactions backed by loans to small and
medium-sized enterprises (SME ABS) that were originated by Banco
Bilbao Vizcaya Argentina S.A (BBVA, Baa3/P-3).
For a detailed list of the affected ratings, see towards the end
of the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the availability of sufficient
credit enhancement to address sovereign and increased counterparty risk.
The introduction of new adjustments to Moody's modelling assumptions
to account for the effect of deterioration in sovereign creditworthiness
has had no effect on the ratings of six classes of notes in the four transactions.
Furthermore, the current level of credit enhancement available under
the Class C notes of BBVA Empresas 3 (63.5%) and under the
Class B notes of BBVA Empresas 6 (39.7%) in the form of
reserve funds and/or subordination is sufficient to support the following
upgrades: to Baa1 (sf) from Ba2 (sf) for the Class C notes of BBVA
Empresas 3 and to Baa3 (sf) from Ba3 (sf) for the Class B notes of BBVA
Empresas 6.
While sovereign risk is largely mitigated by the high level of credit
enhancement (39.0%) as of March 2013, increased counterparty
risk and exposure to borrower concentration drove the downgrade of the
Class B notes of BBVA Empresas 5. As the credit enhancement is
entirely in the form of a reserve fund held at BBVA, the Class B
notes are strongly linked to BBVA's rating. In addition,
the exposure to the five biggest borrowers in the transaction amounts
currently to 15%, which could lead to large losses should
any of these borrowers default. As a result, Moody's
downgraded the Class B notes to Baa1 (sf) from A3 (sf).
The credit enhancement levels in BBVA Empresas 3 on 25 March 2013 were
126.7%, 84.6% and 63.5%
for the Class A, B and C notes, respectively. The cumulative
defaults in the collateral pool adds up to 5.5% of the initial
pool balance as of April 2013.
The credit enhancement level in BBVA Empresas 4 on 25 February 2013 was
103.9%, which is entirely in the form of a reserve
fund. The cumulative default recorded in the collateral pool adds
up to 3.0% of the initial pool balance as of the end of
April 2013.
The credit enhancement levels in BBVA Empresas 5 on 14 March 2013 were
82.9%, and 39.0% respectively for the
Class A and B notes. The cumulative default recorded in the collateral
pool adds up to 0.8% of the initial pool balance as of mid-May
2013.
The credit enhancement levels in BBVA Empresas 6 on 14 May 2013 were 71.5%,
39.7% and 19.1% respectively for Class A,
B and C notes. There is limited cumulative default recorded in
the collateral pool as of mid-May 2013.
- Additional Factors Better Reflect Increased Sovereign Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the local currency country risk
ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's intends
to better reflect increased sovereign risk in its quantitative analysis,
in particular for mezzanine and junior tranches. See "Structured
Finance Transactions: Assessing the Impact of Sovereign Risk" for
a more detailed explanation of the additional parameters. This
report is available on www.moodys.com and can be accessed
via the following link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319988.
The Spanish country ceiling is A3, which is the maximum rating that
Moody's will assign to a domestic Spanish issuer including structured
finance transactions backed by Spanish receivables. The portfolio
credit enhancement represents the required credit enhancement under the
senior tranche for it to achieve the country ceiling. By lowering
the maximum achievable rating, the revised methodology alters the
loss distribution curve and implies an increased probability of high loss
scenarios.
Under the updated methodology incorporating sovereign risk on ABS transactions,
loss distribution volatility increases to capture increased sovereign-related
risks. Given the expected loss of a portfolio and the shape of
the loss distribution, the combination of the highest achievable
rating in a country for structured finance and the applicable credit enhancement
for this rating uniquely determines the volatility of the portfolio distribution,
which the coefficient of variation (CoV) typically measures for ABS transactions.
A higher applicable credit enhancement for a given rating ceiling or a
lower rating ceiling with the same applicable credit enhancement both
translate into a higher CoV.
- Moody's Revises Key Collateral Assumptions
Moody's maintained its default and recovery rate assumptions for the transactions,
which it updated on 21 December 2012 (see "Moody's updates key collateral
assumptions in Italian and Spanish ABS transactions backed by portfolio
of consumer and auto loans" [http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Italian-and-Spanish-ABS--PR_262879]).
According to the updated methodology, Moody's increased the CoV,
which is a measure of volatility.
For BBVA Empresas 3, Moody's current default assumption is
18.2% of the current portfolio and the assumption for the
fixed recovery rate is 45%. Moody's has increased the CoV
to 56.5% from 40.0%, which, combined
with the revised key collateral assumptions, corresponded to a portfolio
credit enhancement of 24.7%.
For BBVA Empresas 4, Moody's current default assumption is
17.1% of the current portfolio and the assumption for the
fixed recovery rate is 45%. Moody's has increased the CoV
to 60.3% from 48.5%, which, combined
with the revised key collateral assumptions, corresponded to a portfolio
credit enhancement of 24.6%.
For BBVA Empresas 5, Moody's current default assumption is
14.9% of the current portfolio and the assumption for the
fixed recovery rate is 42.5%. Moody's has increased
the CoV to 60.1% from 42.6%, which,
combined with the revised key collateral assumptions, corresponded
to a portfolio credit enhancement of 21.5%.
For BBVA Empresas 6, Moody's current default assumption is
20.2% of the current portfolio and the assumption for the
fixed recovery rate is 46.5%. Moody's has increased
the CoV to 57.8% from 40.1%, which,
combined with the revised key collateral assumptions, corresponded
to a portfolio credit enhancement of 26.0%.
In addition, Moody's incorporated stress scenarios in its
analysis to cover for the fact that the pools in Empresas 5 and 6 are
highly concentrated and that this concentration levels are not embedded
in its CoV and portfolio credit enhancement levels, which assume
a granular portfolio.
- Moody's Has Considered Exposure to Counterparty Risk
The conclusion of Moody's rating review also takes into consideration
the increased exposure to commingling due to weakened counterparty creditworthiness.
In the four transactions, BBVA acts as servicer and transfers collections
on the second business day following receipt to the issuers' account held
by BBVA. Moody's has incorporated into its analysis the potential
default of BBVA as servicer and issuer account bank, which could
expose the transaction to a loss of the reserve fund as well as a three-month
commingling loss. Ultimately, the linkage to BBVA only negatively
affects the Class B notes in BBVA Empresas 5 because of the size of the
reserve fund.
The four transactions are also exposed to BBVA acting as swap counterparty.
As part of its analysis, Moody's took into account the counterparty
risk related to these swaps, which has no negative impact on the
ratings of the notes at this time.
- Other Developments May Negatively Affect the Notes
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
As the euro area crisis continues, the ratings of structured finance
notes remain exposed to the uncertainties of credit conditions in the
general economy. The deteriorating creditworthiness of euro area
sovereigns as well as the weakening credit profile of the global banking
sector could further negatively affect the ratings of the notes.
Moody's describes additional factors that may affect the ratings in its
Request for Comment, "Approach to Assessing Linkage to Swap Counterparties
in Structured Finance Cashflow Transactions: Request for Comment",
02 July 2012.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted considering
the probabilities of the inverse normal distribution assumed for the portfolio
default rate. In each default scenario, Moody's calculates
the corresponding loss for each class of notes given the incoming cash
flows from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss for each tranche is the sum product
of the probability of occurrence of each default scenario and the loss
derived from the cash flow model in each default scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
In the context of the rating review, Moody's has remodelled the
transactions and adjusted a number of inputs to reflect the new approach
described above.
METHODOLOGIES
The methodologies used in these ratings were "Moody's Approach to Rating
EMEA SME Balance Sheet Securitisations", published in May
2013 and "The Temporary Use of Cash in Structured Finance Transactions:
Eligible Investment and Bank Guidelines", published in March 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
LIST OF AFFECTED RATINGS
Issuer: BBVA Empresas 3, FTA
....EUR2210M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR260M B Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR130M C Notes, Upgraded to Baa1
(sf); previously on Feb 18, 2011 Assigned Ba2 (sf)
Issuer: BBVA Empresas 4, FTA
....EUR1700M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
Issuer: BBVA Empresas 5, FTA
....EUR975M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR275M B Notes, Downgraded to Baa1
(sf); previously on Jul 2, 2012 A3 (sf) Placed Under Review
for Possible Downgrade
Issuer: BBVA Empresas 6, FTA
....EUR804M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR240M B Notes, Upgraded to Baa3
(sf); previously on Jul 2, 2012 Ba3 (sf) Placed Under Review
for Possible Downgrade
....EUR156M C Notes, Confirmed at B3
(sf); previously on Jul 2, 2012 B3 (sf) Placed Under Review
for Possible Downgrade
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of these transactions
in the past six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Frederic?Lautard
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Christophe?de Noaillat
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Alix Faure
Asst Vice President - Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Takes Multiple Actions on BBVA Empresas Spanish ABS SME Notes
