Madrid, December 22, 2010 -- Moody's Investors Service has assigned a definitive 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:
- Aaa. This rating is on review for possible downgrade;
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 definitive 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 on review for possible downgrade/Prime-1/C-)
and the reinvestment account held at Banco Popular Español S.A.
(rated Aa3 on review for possible downgrade /Prime-1/C-).
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recoveries, since any withdrawn amount will be repaid to the LF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 final Aaa rating is on review for possible downgrade given that Banco
Pastor, Caja Laboral and CatalunyaCaixa A3 senior unsecured ratings
were placed on review for possible downgrade on 20 December 2010.
For further information on the rating actions taken by Moody's Financial
Institutions Group, please refer to "Moody's takes actions on rated
Spanish banks further to sovereign rating review" published on 20 December
2010.
During the review, Moody's will consider the negative rating impact
of the final senior unsecured rating of the participants.
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 on review for possible downgrade.
- Caja Laboral: A3 on review for possible downgrade.
- CatalunyaCaixa: A3 on review for possible downgrade.
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.
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.
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.
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 maintaining
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 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
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
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
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 definitive ratings to IM Cédulas 15's covered bonds
