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21 Jun 2010
Madrid, June 21, 2010 -- Moody's Investors Service has assigned definitive ratings of Aaa to the
Series A issued by Cédulas TdA 19, Fondo de Titulización
de Activos. Series A amounts to EUR 4.5 billion, and
bears a fixed-rate coupon of 2.25%, with an
expected maturity in February 2013. This transaction is a repeat
TdA issuance of Spanish multi-issuer covered bonds (SMICBs or the
notes) through the establishment of a new closed Fund in accordance with
the Spanish Securitisation Law.
The transaction represents the repackaging of a portfolio of mortgage
covered bonds (Cédulas Hipotecarias or CHs) issued by three Spanish
financial entities (the issuers). The series is backed by a pool
of CHs issued by: Banco Popular Español S.A.
(EUR 1.5 billion), Bankinter (EUR 1.5 billion),
and Caja Madrid (EUR 1.5 billion). Each CH is a full-recourse
obligation of the entity that issues it and is secured on the entire pool
of mortgages owned by that bank. Each CH is callable by the issuer
at its own discretion during the life of the transaction. The Fund
has financed the purchase of the CHs with the proceeds of the notes.
The purpose of the transaction is to provide the issuers with eligible
assets, which can be used as guarantee for Eurosystem monetary policy
The rating of the notes is based on the following aspects:
» The expected loss (EL) of the underlying CHs backing the notes
is commensurate with Aaa ratings. This means that the level of
over-collateralisation (OC) held by the issuers is consistent with
» Timely payment improved by liquidity facility and extension maturity.
The notes benefit from a committed liquidity facility (LF) provided by
the issuers, which may be used to pay any interest shortfalls on
the notes on an ongoing basis as well as extraordinary expenses.
The LF does 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from insufficient recoveries, since any withdrawn amount will in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 issuers' ratings. 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 two 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. The LF available amount has been assessed
in order to account for possible early redemptions of the CHs due to the
issuers' voluntary calls that could modify the series composition.
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 Spanish issuers
could erode the rating assigned to the notes, given that the EL
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
» All participating entities in the series are rated Baa3 or above.
» The committed levels of OC on any entity are compatible with a
Aaa expected loss.
» The LF is sized sufficiently.
SMICBs can be considered a repackaging of a pool of Spanish covered bonds.
Each SMICB is backed by a group of Spanish covered bonds (Cedulas) which
are bought by a Fund, which in turn issues SMICBs.
Moody's rating for any SMICB is determined after applying a two-step
1) 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 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
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 these transactions 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 Bonds", published in March 2010, and "Assessing
Swaps as Hedges in the Covered Bond Market", published in September
2008. These 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 issue 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, available to all registered users of our website,
The rating assigned by Moody's addresses 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 and to investors.
Juan Pablo Soriano
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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 Cedulas TdA 19, FTA
No Related Data.
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