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Rating Action:

Moody's assigns Aaa.mx (sf) and A3 (sf) ratings to Fovissste's Mexican RMBS, FOVISCB 19U

 The document has been translated in other languages

08 Aug 2019

NOTE: On August 14, 2019, the press release was corrected as follows: In the first sentence of the second paragraph of the Ratings Rationale section, the cut-off date was changed to June 30, 2019, and in the second sentence of the second paragraph of the Ratings Rationale section, the seasoning was changed to 30.6 months. Revised release follows.

Mexico, August 08, 2019 -- Moody's de México, S.A. de C.V. ("Moody's") has assigned ratings of Aaa.mx (sf) (Mexican National Scale) and A3 (sf) (Global Scale, Local Currency) to the FOVISCB 19U Series A certificates (the certificates). The certificates are expected to be issued by Banco Actinver, S.A., Institución de Banca Múltiple, Grupo Financiero Actinver, División Fiduciaria, which is acting solely as trustee in this transaction.

Interest and principal to note holders will be primarily payable with cash flow from a pool of residential mortgages granted to primarily low-income borrowers, originated and serviced by Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (FOVISSSTE) and assigned to the trust, established under the laws of Mexico.

The complete rating action is as follows:

-Issuance of up to 1,591,590,000 UDIs, or approximately MXN$10,000,000,000.00, in Class A certificates FOVISCB 19U, rated Aaa.mx (sf) (Mexican National Scale) and A3 (sf) (Global Scale, Local Currency)

-Issuer: Banco Actinver, S.A., Institución de Banca Múltiple, Grupo Financiero Actinver, División Fiduciaria

These credit ratings are subject to the fulfillment of contingencies that are highly likely to be completed, such as finalization of documents and issuance of the securities. These credit ratings are based on certain information that may change prior to the fulfillment of such contingencies, including market conditions, financial projections, transaction structure, terms and conditions of the issuance, characteristics of the underlying assets or receivables, allocation of cash flows and of losses, performance triggers, transaction counterparties and other information included in the transaction documentation. Any pertinent change in such information or additional information could result in a change of these credit ratings.

RATINGS RATIONALE

The assigned ratings are based on the following:

- The credit quality of the pool, which is comprised of minimum wage-denominated (VSM) and Update and Measurement Units (UMA) denominated, fixed-rate, first-lien, residential mortgage loans secured by low and middle-income houses in Mexico and granted to active public sector employees. All loans were originated by FOVISSSTE (not rated) and the mortgages are also serviced by FOVISSSTE via automatic payroll deductions.

- The certificates' initial and target credit enhancement of 25% in the form of over-collateralization and the transaction's priority of payments waterfall.

- Additional credit enhancement in the form of excess spread and three months of fully funded reserve accounts covering three month of certificate interest and scheduled principal payments.

- The legal final maturity date on June 29th, 2048.

- FOVISSSTE's financial stability as servicer, given its status as a government-related institution and its predominance as one of the largest mortgage originators in Mexico.

- The alignment of interests between investors and FOVISSSTE, holder of the residual certificates.

- The well-established Mexican laws governing mortgage securitization.

Moody's reviewed a portfolio of 17,717 mortgage loans with an aggregate outstanding balance of MXN$13,337,145,832 as of June 30, 2019, the cut-off date. As of the cut-off date, the pool had the following weighted average characteristics: an original loan-to-value (LTV) of 89%, a current LTV of 76%, a payment-to-income ratio of 30% for all borrowers, seasoning of 30.6 months, loan coupon of 5.89% and an average current loan amount of MXN$752,788. The borrowers had a simple average monthly income of 6.10 UMA.

The FOVISCB 19U certificates are denominated in inflation indexed unidad de inversion (or UDIs) units and have a fixed interest rate of 4.86%. At closing, the certificates will constitute 75% of the issuance balance, and the residual will account for the remaining 25%. On each monthly payment date, after covering expenses, the trust will use cash collected from interest and principal payments to pay interest on the certificates. After making interest payments, the trust will amortize FOVISCB 19U certificates per the amortization schedule; any prepayment proceeds will be used for accelerated amortization of the certificates. After these payments, the trust will apply the required resources to replenish the reserve fund, if necessary. If release conditions comply and all payments listed above are fully covered, any remaining excess cash flows may be distributed to residual holders; if release conditions are not in compliance, any excess cash flow will be used for accelerated amortization of the rated certificate balance.

FOVISSSTE will service the securitized portfolio. FOVISSSTE is a government-related institution and one of the largest mortgage originators in Mexico. Its role is to provide affordable housing financing to employees of the Mexican Government. Hipotecaria Total, S.A.P.I. de C.V. (HITO) will act as the master servicer and will be responsible for validating the cash flows reported from collections, as well as for preparing collateral performance reports. Moody's views this transaction as highly dependent on the operations of FOVISSSTE, because replacing FOVISSSTE as servicer would be very difficult given the specialized nature of both the origination and the servicing of payroll loans to employees of the Mexican government.

The period of time covered in the financial information used to determine FOVISCB 19U's rating is between November 2010 and July 2019 (source: portfolio of underlying collateral for FOVISCB 19U´s certificates, information provided by the originator; historical performance information on deals previously rated by Moody's, periodic collections and remittance reports from servicers, trustees and common representative agents.)

After assessing the credit quality of the mortgage loan pool, Moody's determined a portfolio expected loss of 5% and MILAN Credit Enhancement (Milan CE) of 21.5%; the latter reflects the loss we expect the portfolio to suffer in the event of a severe recession scenario.

The portfolio's expected loss of 5% is based on Moody's assessment of the lifetime loss expectation, which considers (1) the average lifetime loss expectation of previous FOVISSSTE-sponsored securitizations and (2) the current macroeconomic environment in Mexico.

The MILAN CE of 21.5% is based on Moody's assessment of the historic FOVISSSTE collateral performance and key pool characteristics, on a loan-by-loan basis.

In issuing and monitoring this rating, Moody's considered the existence and extent of arrangements and mechanism, if any, to align the incentives of the originator and servicer of the securities with those of its potential acquirers.

Factors that would lead to an upgrade or downgrade of the ratings:

Factor that may lead to an upgrade of the rating include updated assessment regarding our maximum achievable rating on the global scale after considering qualitative factors such as servicing risk. The national scale rating is already positioned at the highest level possible.

Factors that may lead to a downgrade of the ratings include unexpectedly high unemployment rate of public sector employees resulting in higher than expected loan defaults, weaker assessment regarding servicer stability or any payment disruptions related to operational risks.

RATING METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in June 2019. Please see the Rating Methodologies page on www.moodys.com.mx for a copy of this methodology.

Other methodologies and factors that may have been considered for the ratings can also be found at www.moodys.com.mx in the Rating Methodologies sub-directory under the Research & Ratings tab.

Further information on Moody's analysis of this transaction is available on www.moodys.com.mx.

Moody's has reviewed the origination and servicer practices and considers them adequate.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1174796.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

In issuing and monitoring this rating, Moody's de México S.A. de C.V. considered the existence and extent of arrangements and mechanism, if any, to align the incentives of the originator, servicer, administrator and guarantor of the securities with those of its potential acquirers.

The expected level of enforceability of the transaction's structural mechanisms in light of the legal, regulatory, tax and sovereign risk environment is anticipated to prevail during the life of the transaction. Changes in legal, tax , regulatory, or sovereign risk environment can result in an increase or decrease in the level of enforceability of transaction structural mechanisms, the level of default probabilities, or the level or timing of recoveries leading to rating volatility.

In issuing this credit rating, Moody's de México S.A. de C.V. did not rely on ratings issued by any other credit rating agency over this issuer/security or any underlying securities.

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

The rating has been disclosed to the rated entity prior to public dissemination.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit 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.

In compliance with regulatory requirements, Moody's de Mexico has been informed that within the two-month period prior to the date hereof, HR Ratings has assigned a rating of AAA (E) on the same securities referred to in this press release.

This credit rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de México S.A. de C.V accepting any liability as a result.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com.mx for additional regulatory disclosures for each credit rating.

Rodrigo Granovsky
Analyst
Structured Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Karen Ramallo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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