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Rating Action:

Moody's assigns definitive Aaa ratings to AyT Cedulas Cajas Global, FTA, Series XXVI

27 May 2010

Madrid, May 27, 2010 -- Moody's Investors Service has assigned definitive ratings of Aaa to the EUR 990 million Series XXVI covered bonds issued by AyT Cedulas Cajas Global, Fondo de Titulización de Activos under its EUR 200 billion covered bond programme.

The Series XXVI notes are fixed-rate bonds, with an expected maturity in May 2015, and total outstanding of €990 million.

Each series represents the pooling of a portfolio of secured mortgage bonds (Cédulas Hipotecarias or CHs) issued by Spanish savings banks, which participate in the programme. The series are separately backed by a different pool of Cédulas. Each Cédula is a full-recourse obligation of the entity that issues it and is secured on a pool of mortgages owned by that bank. The Fund will finance the purchase of each portfolio of Cedulas with the proceeds of the bonds. The Series XXVI is backed by five CHs issued by: Caixa d'Estalvis de Catalunya (40.40%), Caja de Ahorros del Mediterráneo (25.25%), Caja de Ahorros de Vitoria y Álava (15.15%), Caja de ahorros y Monte de Piedad de las Baleares (10.10%), Monte de Piedad y Caja General de Ahorros de Badajoz (9.09%).

Moody's considers that this new series has been considerably enhanced as the participating entities will commit at closing to maintaining adequate levels of over-collateralisation through the life of the series in order to protect the Aaa ratings, despite the deterioration in the issuers' credit strength over the past year. Under the over-collateralisation protection agreement entered between the management company, the arranger and the issuing entities, the issuers have committed to maintaining certain levels of over-collateralisation over the whole life of the notes. Any breach of the agreement should be cured within 30 days by means of adding more assets, buying back Cédulas if possible or including new substitute assets.

Moody's considers that the proposed committed levels are commensurate with Aaa ratings given the issuers' current ratings and the pool composition and based on its stress-tests of the cover pool to different credit and market scenarios in line with its methodology for covered bonds. Moody's regards the agreement as legally valid, binding and enforceable amongst the parties, although according to its terms the investors are not direct beneficiaries of it and may not take any legal actions based on it. However, Moody's considers that the management company, acting as a party to the agreement, is entitled to enforce the issuers to fulfil their obligations under the commitment.

Although the Spanish CHs benefit from the whole mortgage cover pool as security and current over-collateralisation levels are very high, nothing prevents the issuers from issuing further CHs or securitising large pools of either eligible or ineligible assets, which could rapidly erode the protection levels. Therefore, for entities rated below A3, Moody's analysis can only rely on a higher level of over-collateralisation if it is committed.

All of the series in the programme will benefit from two shared committed liquidity facilities (LFs) provided by ICO (Aaa/P-1) for the variable-rate series and fixed-rate series, which may be used to pay any interest shortfalls on the notes on an ongoing basis as well as extraordinary expenses. The LFs will be available until final maturity to cover any Cédula interest shortfalls and advance any extraordinary expenses. The LFs do not provide any credit protection against losses stemming from insufficient recoveries, since any withdrawn amount will in practice 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 rating of the issuers. In addition, following a payment shortfall on the CHs at the final maturity date, the built-in maturity extension on the notes of up to three years after the latest maturing series may both improve the recoveries on the defaulted CHs and increase the probability of timely payment of the notes.

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 rapid deterioration in the credit strength and collateral of some of the issuers could erode the rating assigned to the notes, given that the expected loss of the notes is dependent on the concentration risk to the weakest issuers, whose CHs could not be assumed to benefit from a recovery of interest and principal commensurate with Aaa ratings in all circumstances.

However, 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 Baa3 or above.

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

- The LF is sized sufficiently.

RATING METHODOLOGY FOR SPANISH MULTI-ISSUER COVERED BONDS

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

1) Moody's determines a rating based on the expected loss on the Spanish multi-issuer covered bonds (SMICB). The main driver of the expected loss (EL) of an SMICB is the credit strength of the Cédulas backing the SMICBs. If the Cédulas perform, the SMICBs will be fully repaid. Cédulas 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 Cédulas backing the SMICB.

2) 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 which improve the probability of timely payment if any Cédula 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 Cédula. This period would be available to realise the value of the assets backing the Cédula; and ii) a liquidity facility (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 Cédulas supporting it were rated below Baa3, unless further structural measures (e.g. reserve fund) were implemented.

Moody's initially analysed and currently monitors this transaction using the rating methodology for EMEA Covered Bond transactions as described in the Rating Methodology reports "Rating Spanish Multi-Issuer Covered Bonds", published in September 2009, "Moody's Rating Approach to Covered Bond", published in March 2005, and "Assessing Swaps as Hedges in the Covered Bond Market", published in September 2008. All can be found on 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 in "Structured Finance Quick Check" available at www.moodys.com/SFQuickCheck.

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.

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

Madrid
Jose de Leon
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns definitive Aaa ratings to AyT Cedulas Cajas Global, FTA, Series XXVI
No Related Data.
© 2018 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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