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Rating Action:

Moody's assigns definitive ratings to SRF 2017-1, Fondo de Titulizacion's Spanish RMBS

03 Apr 2017

EUR 316 million of rated debt securities affected

Madrid, April 03, 2017 -- Moody's Investors Service has assigned definitive ratings to SRF 2017-1, Fondo de Titulización's ("SRF 2017-1") Class A, B, C and D notes:

....EUR 248 million Class A Notes due April 2063, Definitive Rating Assigned Aa2 (sf)

....EUR 40 million Class B Notes due April 2063, Definitive Rating Assigned A2 (sf)

....EUR 16 million Class C Notes due April 2063, Definitive Rating Assigned Baa3 (sf)

....EUR 12 million Class D Notes due April 2063, Definitive Rating Assigned Ba2 (sf)

Moody's has not assigned rating to EUR 84 million Class E Notes due April 2063.

Moody's assigned provisional ratings to the notes on March 17, 2017.

SRF 2017-1, Fondo de Titulización is a static cash securitisation largely consisting of seasoned re-performing residential mortgage loans extended to borrowers located in Spain, originated by Caixa d'Estalvis de Catalunya ("Caixa Catalunya"), Caixa d'Estalvis de Tarragona ("Caixa Tarragona") and Caixa d'Estalvis de Manresa ("Caixa Manresa"), which were merged into Caixa d'Estalvis de Catalunya, Tarragona i Manresa. The banking business of Caixa d'Estalvis de Catalunya, Tarragona i Manresa was transferred (as a whole) to Catalunya Banc, SA by virtue of a spin-off on 27 September 2011. On 24 April 2015, Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA") acquired 98.4% of the share capital of Catalunya Banc, SA and, as of 9 September 2016, Catalunya Banc, SA was absorbed by and merged with BBVA. BBVA is currently rated Baa1 Senior Unsecured / A3 Deposit Rating / Baa1 (cr). The servicing will be undertaken by BBVA, on behalf of the fund, and through Anticipa Real Estate, S.L.U. (N.R) ("Anticipa"). In April 2015, Catalunya Banc, SA sold a EUR 6bn portfolio consisting of mainly residential mortgage loans to a Spanish securitisation fund (FTA 2015, Fondo de Titulización de Activos) set-up for the benefit of an entity controlled by Spain Residential Finance S.A R.L. Some of these mortgage loans in FTA 2015 will be securitized in SRF 2017-1. Furthermore, Spain Residential S.A.R.L. is expected to subscribe to the Class E Note and the Subordinated Loans in SRF 2017-1.

The portfolio consists of first lien (or subsequent lien, provided that the first lien mortgage will also be assigned to SRF 2017-1) mortgages on residential properties extended to 3,307 Spanish borrowers, and the provisional pool balance is approximately equal to €403.1 million with a weighted average current loan-to-value ("WA CLTV") of 60.88%. 79.16% of the loans in the pool have been previously restructured and are now re-performing loans. 20.84% of the loans have not been restructured. The purchase price of the mortgage loans payable by the fund to the seller is expected to be below par value. Please note that the figures in this press release are derived from the provisional pool as of 27 February 2017 and the final pool amounting to c. €400 million will be randomly selected from this provisional pool.

The definitive ratings address the expected loss posed to investors by the legal final maturity. In our opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the Class A notes by the legal final maturity date, and ultimate payment of interest and principal with respect to Classes B, C and D by legal final maturity. 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.

RATINGS RATIONALE

The first step in the analysis of the credit quality of the pool is to determine a loss distribution of the mortgages to be securitised. In order to determine the shape of the curve, two parameters are needed: the expected loss and the volatility around this expected loss. Securitisation of re-performing loans have characteristics similar to those of seasoned RMBS transactions. Both types of securitisations have seasoned collateral in various stages of payment and distress. For that reason, our analysis of re-performing transactions typically follows our methodology for analysing the underlying asset type (e.g., residential mortgage loans in this case). The two main parameters needed to determine the loss distribution (expected loss and volatility around it) of the pool are derived from two important sources: historical loss data and the MILAN loan-by-loan model.

The key drivers for the portfolio's expected loss of 11.0% are (i) historical data provided previously by Catalunya Banc, SA on their mortgage portfolio, (ii) performance data from previous deals originated by Catalunya Banc, SA (Hipocat and MBSCAT), (iii) market and sector wide performance data, (iv) performance of other securitisations with similar loan characteristics, and (v) the outlook on Spanish RMBS. The two factors that mainly influence the likelihood that a re-performing mortgage loan will re-default are how long the loan has performed since its last modification, and the magnitude of reduction in the monthly mortgage payment as a result of modification. The longer a borrower has been current on a re-performing loan, the lower the likelihood of re-default. All the instalments accrued since 1 February 2015 under the mortgage loans of the provisional pool have been paid with no more than 35 calendar days in arrears for each instalment.

The transaction's 32.0% MILAN CE number is higher than other Spanish RMBS transactions owing to 51.93% of the pool consisting of flexible mortgage products which lead to a higher expected default frequency and more severe losses than traditional mortgage loans. The MILAN CE also reflects other characteristics of the pool that are specific to re-performing loans. 79.16% of the loans in the pool have been restructured and are now paying under modified terms. If the loans are currently in arrears or the terms of the loan have been modified since closing, Moody's does not consider LTV to be the only major driver for losses. Therefore, the MILAN CE number has been adjusted to account for a higher likelihood of re-default of the re-performing loans compared to loans that have never been restructured. This results in a loss distribution with higher probability of "fat tail" events with respect to the expected loss.

Moody's considers that the deal has the following credit strengths: (i) availability of payment histories on the mortgage loans in the collateral pool. The default propensity on seasoned re-performing modified loans is largely driven by the demonstrated payment history on the loans. As borrowers continue to make payments on a mortgage loan, they progressively become less likely to default. All the instalments accrued since 1 February 2015 under the mortgage loans of the provisional pool have been paid with no more than 35 calendar days in arrears for each instalment. Additionally, during that period, none of the loans has benefited from a contractual grace period; (ii) the WA CLTV ratio of 60.88% (calculated taking into account the original appraisal value when the loan was granted) is lower than the average for Spanish transactions; (iii) the portfolio is well seasoned, with a weighted average seasoning of 9.25 years and (iv) the credit enhancement provided by an amortising reserve fund equal to 2.5% of Class A notes at closing and the subordination of the notes. The reserve fund will be established as a credit enhancement mechanism for the purpose of providing liquidity to cover senior fees and interest on the Class A notes for as long as these notes remain outstanding. The reserve fund is also available to cover principal on Class A notes at the legal final maturity. Accordingly, on the payment date on which the Class A notes are redeemed in full, the reserve fund required amount will be equal to zero.

Moody's also notes the following credit weaknesses of the transaction: (i) no interest rate swap is in place to cover interest rate risk. Moreover, 60.05% of the pool has the option of an automatic discount on the loan margin depending on the cross-selling of other products to the borrower, (ii) 79.16% of the loans in the pool have been restructured and are now paying under modified terms, (iii) historical performance of previous Catalunya Banc, SA deals. Previous transactions originated by Catalunya Banc, SA (Hipocat and MBSCAT series) display a weaker performance than the market and (iv) weaker than standard representations & warranties (R&W) framework: Moody´s considers the R&W weaker than the standard in the Spanish market for the following reasons: (1) the representation provider is an unrated private limited liability company, and (2) the obligation to repurchase or replace loans in breach of R&Ws would only be activated upon the earlier of (i) the aggregate ineligible mortgage amount is higher than EUR 2,500,000, and (ii) the fifth anniversary of the transaction's closing date. Moody´s has factored all of these weaknesses in the analysis/modelling, for further information please see Moody's Pre-Sale report on SFR 2017-1 Fondo de Titulización on Moodys.com

STRESS SCENARIOS:

Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and 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 key rating input parameters were varied. Parameter Sensitivities for typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

At the time the definitive ratings were assigned, the model output indicated that the Class A notes would have achieved an Aa2 if the expected loss was as high as 13.75%, if the MILAN CE was 32%, and all other factors were constant. The model output further indicated that the Class A notes would not have been assigned an Aa2 rating with a MILAN CE of 38.4%, and an expected loss of 11.0%.

The principal methodology used in these ratings was "Moody's Approach to Rating Securitisations Backed by Non-Performing and Re-Performing Loans" published in August 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's will monitor this transaction on an ongoing basis. For updated monitoring information, please contact monitor.rmbs@moodys.com.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

Factors that may lead to an upgrade of the ratings include a significantly better-than-expected performance of the pool, combined with an increase in the notes' credit enhancement and a decline in Spain´s sovereign risk.

Factors that may cause a downgrade of the ratings include (i) significantly different loss assumptions compared with our expectations at closing, due to a change in economic conditions from our central forecast scenario or idiosyncratic performance factors; or (ii) an increase in Spain's sovereign risk.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's describes its loss and cash flow analysis in the section "Ratings Rationale" of this press release.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alberto Barbachano
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Olga Gekht
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2021 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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