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Rating Action:

Moody's assigns (P)Aaa ratings to IM Cédulas 15's covered bonds (Spain)

Global Credit Research - 15 Dec 2010

EUR 1,600 million bonds rated.

Madrid, December 15, 2010 -- Moody's Investors Service has assigned a provisional (P) long-term rating to the Spanish multi-issuer covered bonds (SMICBs) issued by IM Cédulas 15, Fondo de Titulización de Activos. The notes have a fixed-rate coupon, with an expected maturity in December 2013:

- (P)Aaa; new rating, EUR1,600 million, December 2013

This transaction is a repeat issuance of SMICBs through a new closed Fund, in accordance with the Spanish Securitisation Law. The transaction repackages a portfolio of mortgage covered bonds (Cédulas Hipotecarias or "CHs") issued by four Spanish financial entities (the Issuers). The notes are backed by a pool of CHs issued by: Banco Caixa Geral (25%), Banco Pastor (25%), Caja Laboral (25%) and CatalunyaCaixa (25%). Each CH is a full-recourse obligation of the issuing entity and is secured on the entire mortgage pool owned by that issuer. The Fund has financed the purchase of the CHs with the proceeds of the SMICBs. The transaction aims to provide the Issuers with eligible assets, which can be used as guarantees for Eurosystem monetary policy operations. The CHs can be early redeemed at each issuer's request.

RATINGS RATIONALE

Moody's says that among other factors, the provisional rating takes into account the following:

(i) The credit strength of the underlying portfolio of CHs.

(ii) The credit strength is itself a function of (a) the unsecured credit strength of each of the four Issuers; (b) the additional security provided by the collateral securing each CH; and (c) the legal framework for CHs in Spain.

(iii) Over-collateralisation (OC) levels held by the participating entities. The high level of OC on each of the four CHs offsets possible credit deterioration of the Cover Pool composition and interest-rate and refinancing risks.

(iv) The Issuers will be able to use a committed liquidity facility (LF) to pay any interest shortfalls on the SMICBs. The full available amount (EUR133.12 million) was deposited at closing in treasury account held at Banesto (rated Aa3/Prime-1/C-, negative outlook) and the reinvestment account held at Banco Popular Español S.A. (rated Aa3/Prime-1/C-, negative outlook). The LF does not provide credit protection against losses from insufficient recoveries, since any withdrawn amount will be repaid to the LF provider in a senior position to the notes' principal redemption. However, this mechanism will reduce the default probability linked to the issuers' ratings (v) The default of a CH does not result in a wind-down of the Fund. A default of a CH does not imply an acceleration of the Fund, but an extension of the Fund maturity up to two years if the default occurs at the scheduled maturity. In this case the SMICBs will be paid down at the scheduled maturity except for the portion corresponding to the defaulted CHs. This results in an improvement of the recoveries on the defaulted CHs for the contractual maturity of the SMICBs and thus increases the probability of their timely payment.

As is the case with other covered bonds, Moody's considers the transaction to be linked to the credit strength of the Issuers, in particular from a timeliness of payment perspective.

The ratings assigned by Moody's address the expected loss posed to investors. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

KEY RATING ASSUMPTIONS/FACTORS

SMICBs can be considered a repackaging of a pool of Spanish covered bonds. Each SMICB is backed by a group of Spanish covered bonds (Cédulas) which are bought by a Fund, which in turn issues SMICBs.

Moody's rating for any SMICB is determined after applying a two-step process:

(i) First step: Moody's determines a rating based on the expected loss on the SMICB.

The main driver of the expected loss (EL) of an SMICB is the credit strength of the CHs backing the SMICBs. If the CHs perform, the SMICBs will be fully repaid. CHs are rated according to Moody's published covered bond methodology. In the absence of any other support (for example, such as a reserve fund), the EL of the SMICB is determined directly from the weighted-average EL (weighted by their outstanding amounts) of the CHs backing the SMICB.

The primary model used is Moody's Covered Bond Model (COBOL) which determines expected loss as a function of the issuer's probability of default, measured by its long-term rating, and the stressed losses on the cover pool assets following issuer default.

The long-term rating used for the four participants are:

- Banco Caixa Geral: A1 by virtue of the unconditional and irrevocable payment guarantee undertaken by its parent Caixa Geral (rated A1/Prime-1/D+, on review for possible downgrade)

- Banco Pastor: A3, negative outlook

- Caja Laboral: A3, negative outlook

- CatalunyaCaixa: A3, negative outlook

The Cover Pool Losses for each CH are:

- Banco Caixa Geral: 29.4%

- Banco Pastor: 41.4%

- Caja Laboral: 31.6%

- CatalunyaCaixa: 45.5%

This is an estimate of the losses Moody's currently models in the event of issuer default. Cover Pool Losses can be split between Market Risk and Collateral Risk. Market Risk measures losses as a result of refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral Risk measures losses resulting directly from the credit quality of the assets in the cover pool. Collateral Risk is derived from the Collateral Score. The Market risks and Collateral Risks for the four CHs are:

- Banco Caixa Geral: 20.1% and 9.3%

- Banco Pastor: 23.3% and 18.0%

- Caja Laboral: 19.7% and 11.9%

- CatalunyaCaixa: 22.4% and 23.2%

(ii) Second step: A secondary rating target for SMICBs is the probability of default.

Under the SMICB rating approach, Moody's gives value to two primary liquidity supports that improve the probability of timely payment if any CH backing the SMICB fails to make a payment on a scheduled payment date. These are: (i) the maturity extension on the SMICB, which should ensure that a period of at least two years is available following any default on the CH. This period would be available to realise the value of the assets backing the CH; and (ii) an LF that is available to cover interest payments on the SMICB. Under the SMICB rating method, the LF benefiting any SMICB can be sized to improve the timely payment of the SMICB to a level commensurate with the SMICBs' rating.

However, regardless of the size of the LF, Moody's would not rate any SMICB Aaa if any of the issuers of the CHs supporting it were rated below Baa3, unless further structural measures (for example, a reserve fund) were implemented.

SENSITIVITY ANALYSIS

The robustness of a covered bond rating largely depends on the credit strength of the underlying issuers. Moody's considers that given the structural enhancements in this transaction, the Aaa ratings assigned to the notes may remain appropriate provided:

- All participating entities in the series are rated Baa1 or above. Moody's notes that given that the underlying CHs are fully callable, there is a tail-risk that a single issuer will be left backing the SMICBs. In this case, Moody's considers that the minimum issuer's rating to achieve Aaa would be Baa1.

- The committed levels of over-collateralisation on any entity are compatible with a Aaa expected loss.

- The LF is sized sufficiently.

A multiple notch downgrade of the covered bonds might occur in certain limited circumstances. Some examples might be (i) a sovereign downgrade negatively affecting the issuers' senior unsecured rating; (ii) a multiple notch downgrade of the issuers; or (iii) a material reduction of the value of the cover pool

For further details on Cover Pool Losses, Collateral Risk, Market Risk, Collateral Score across all covered bond programmes rated by Moody's please refer to "Moody's EMEA Covered Bonds Monitoring Overview", published quarterly. These figures are based on the most recent reporting by the issuer and are subject to change over time.

RATING METHODOLOGY

The principal methodologies used in this rating were Rating Spanish Multi-Issuer Covered Bonds, published in September 2009 and Moody's Rating Approach to Covered Bonds published in March 2010.

REGULATORY DISCLOSURES

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 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
Jose de Leon
Senior Vice President
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Madrid
Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)Aaa ratings to IM Cédulas 15's covered bonds (Spain)
No Related Data.
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