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Global Credit Research - 11 Oct 2010
EUR 475 Million of debt securities rated
Milan, October 11, 2010 -- Moody's Investors Service has assigned the following definitive ratings
to the ABS notes issued by Madrid Consumo II, FTA (the "Issuer"):
Issuer: Madrid Consumo II, FTA
Aaa (sf) to EUR475M Class A Floating rate Notes, due 2023
This deal benefits from several credit strengths, such as a short
portfolio weighted average life of 2.5 years and a relatively simple
structure, which does not include a revolving period, as well
as certain structural features such as the appointment of a back up servicer
upon loss of Baa3 ratings by Caja Madrid. Moody's however notes
that the transaction features a number of credit weaknesses, as
there are some portfolio concentrations relative to consumer loan transactions,
with the largest borrower representing 0.2% of the portfolio
and 10 largest borrowers 1.5% and with strong regional concentrations
in the Madrid area. In addition, there is some exposure to
commingling risk (although partially mitigated by an increase in the frequency
of funds transfer to the issuer at loss of P-1 by Caja Madrid)
as well as reliance on the originator/servicer (rated A1/P-1) to
perform a multitude of roles in the transaction. These characteristics
were considered in Moody's analysis and ratings.
The rating on the notes takes into account among other factors,
on (i) an evaluation of the underlying portfolio of loans; (ii) historical
performance information; (iii) the swap agreement, which only
partially hedges interest rate risk; (iv) the credit enhancement
provided by the excess spread and the reserve fund; (v) the liquidity
support available in the transaction, by way of principal to pay
interest, and the reserve fund; (vi) the provisions for the
appointment of a back-up servicer; and (vii) the legal and
structural integrity of the transaction.
The V Score for this transaction is Medium, which is in line with
the score assigned for the Spanish Consumer loan sector. However,
Moody's notes that Disclosure of Securitisation Collateral Pool Characteristics
is Medium as the internal scoring system information was not made available.
Transaction Complexity is also Medium as interest rate risk is only partially
hedged and hence required additional analysis. For more information,
the V-Score has been assigned accordingly to the report "V Scores
and Parameter Sensitivities in the Global Consumer Loan ABS Sectors",
published in May 2009.
In its quantitative assessment, Moody's assumed a mean default rate
of 10% with a coefficient of variation of 40% and a recovery
rate of 20% as the main input parameters for Moody's cash-flow
model ABSROM. In its base case scenario, Moody's also assumed
a constant prepayment rate of 10% and a sinus-shape timing
of defaults, considering a 90 days default definition.
The principal methodology used in rating Madrid Consumo II, FTA
was The Lognormal Method Applied to ABS Analysis, published in July
2000. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Moody's Investors Service received and took into account a third party
due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
For rating this transaction Moody's used ABSROM (v.2.2.6)
to model the cash flows and determine the loss for each tranche.
In the cash flow model, once all of the asset-side modelling
assumptions are input, the model produces a series of default scenarios
that are weighted considering the probabilities of the lognormal distribution
assumed for the portfolio defaults. In each default scenario,
the corresponding loss for each class of notes is calculated given the
incoming cash flows from the assets and the outgoing payments to third
parties and noteholders. Therefore, the expected loss or
EL for each tranche is the sum product of (i) the probability of occurrence
of each default scenario; and (ii) the loss expected in each default
scenario for each tranche.
Moody's Parameter Sensitivities: Moody's principal portfolio model
inputs are Moody's cumulative default rate assumption and the recovery
rate. Moody's tested various scenarios derived from different combinations
of mean default rate (i.e. adding a stress on the expected
average portfolio quality) and recovery rate. For example,
Moody's tested for the mean default rate: 10% as base case
ranging to 12% and for the recovery rate: 20% as base
case ranging to 10%. The model sensitivity output indicated
that Class A model output would vary from Aaa to Aa2 in these scenarios
(all other factors being constant). Moody's Parameter Sensitivities
provide a quantitative / model-indicated calculation of the number
of rating notches that a Moody's-rated structured finance security
may vary if certain input parameters would change. The analysis
assumes that the deal has not aged. It is not intended to measure
how the rating of the security might migrate over time, but rather,
how the initial rating of the security might have differed if the two
parameters within a given sector that have the greatest rating impact
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, 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.
In addition Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
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.
Structured Finance Group
Moody's Italia S.r.l
Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Moody's Italia S.r.l
Moody's assigns definitive ratings to Consumer ABS notes issued by Madrid Consumo II, FTA
Corso di Porta Romana 68
No Related Data.
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