Madrid, July 27, 2011 -- Moody's Investors Service has today taken the following rating actions
on the mortgage covered bonds (Cédulas Hipotecarias or CHs) and
public-sector covered bonds (Cédulas Territoriales or CTs)
transferred to Banco CAM (rated Ba1/NP/D, negative outlook) from
Caja de Ahorros del Mediterráneo (CAM):
- Mortgage covered bonds assumed by new Banco CAM: Baa1,
new rating
- Mortgage covered bonds issued by CAM: Baa1, withdrawn
for reorganisation; previously downgraded to Baa1 from Aa2 on review
for downgrade on 19 April 2011
- Public-sector covered bonds assumed by new Banco CAM:
A3, new rating
- Public-sector covered bonds issued by CAM: A3,
withdrawn for reorganisation; previously downgraded to A3 from Aa2
on review for downgrade on 19 April 2011
RATINGS RATIONALE
Today's rating actions were prompted by the effective transfer on 22 July
2011 of the financial business of CAM to Banco CAM.
Banco CAM, a wholly owned subsidiary of CAM, has been created
as part of CAM's recapitalisation plan, which followed the
failure to create a "cold merger" of four savings banks into
Banco Base (for further information see Moody's press release on
CAM dated 19 April 2011).
The recapitalisation plan -- involving the transfer of CAM's
financial business to a commercial bank -- is a precondition
imposed by the recent Royal Decree 2/2011 for savings banks, if
they are to receive public funds in the form of capital, as these
institutions do not have share capital.
On 22 July 2011 and following the transfer of the financial business of
CAM to Banco CAM, Bank of Spain initiated the announced restructuring
process of CAM (for further details see "Moody's downgrades Caja
de Ahorros del Mediterraneo to Ba1" published on 19 April 2011).
At the same time, the state-owned fund ("FROB",
Fund for the Orderly Restructuring of the Banking System) made a EUR2.8
billion capital injection into Banco CAM and granted a EUR3 billion credit
facility to ensure the liquidity position of the entity.
Banco CAM is now governed and owned by the FROB, which has also
taken control of the entity's board to ensure that the restructuring
plan is implemented.
CAM's role will be to manage the social welfare projects financed
through dividends paid by Banco CAM, following the completion of
the transfer; it also acts as the holding company of Banco CAM.
As a result of the completion of the transfer of CAM's assets and
liabilities, Banco CAM has assumed CAM's debt obligations,
including the existing CHs and CTs.
Moody's understands that the new cover pool backing Banco CAM's
CHs is CAM's former total mortgage pool and has therefore taken
a view on CAM's former pool. Moody's has sufficient
information on this pool to assess its credit quality.
Likewise, Moody's understands that the new cover pool backing
Banco CAM's CTs is CAM's former total public-sector
pool. Therefore, Moody's has taken a view on CAM's
former pool. Moody's has sufficient information on this pool
to assess its credit quality.
The mortgage covered bonds constitute direct, unconditional and
senior obligations of Banco CAM and are secured by the issuer's entire
mortgage loan pool (excluding securitised loans).
The public-sector covered bonds also constitute direct, unconditional
and senior obligations of Banco CAM and are secured by the issuer's entire
domestic and EEA public-sector loan pool.
The new ratings take into account the following factors:
(1) The credit strength of Banco CAM (Ba1/NP/D).
(2) The structure created by the transaction documents in combination
with the legal framework for Spanish mortgage and public-sector
covered bonds.
(3) The credit quality of the assets securing the payment obligations
of the issuer under the covered bonds. All the cover assets covering
the CHs are residential or commercial mortgages originated in Spain.
Most of the assets covering the CTs are loans to Spanish regional and
local governments, or companies owned by such entities.
(4) Sizeable amounts of over-collateralisation. For mortgage
covered bonds: on a statutory level this is 25% based on
the eligible cover pool, and total over-collateralisation
as of end-March 2011 was 214.9%. The over-collateralisation
level needed to maintain the current rating is 16.5%.
For public-sector covered bonds: on a statutory level this
is 42.9%, and the over-collateralisation as
of end-March 2011 was 177.9%. The over-collateralisation
level needed to maintain the current rating is 6.5%.
Moody's has assigned a TPI of "Probable" to the CHs and "Probable-High"
to the CTs.
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.
The ratings assigned to the existing CHs and CTs is expected to be assigned
to all subsequent covered bonds issued by Banco CAM under these programmes
and any future rating actions are expected to affect all such covered
bonds. If there are any exceptions to this, Moody's will
in each case publish details in a separate press release.
KEY RATING ASSUMPTIONS/FACTORS
Covered bond ratings are determined after applying a two-step process:
expected loss analysis and TPI framework analysis.
EXPECTED LOSS: Moody's determines a rating based on the expected
loss on the bond. 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 rating of Ba1, and
the stressed losses on the cover pool assets following issuer default.
Mortgage covered bonds:
The estimated Cover Pool Losses for this programme are 41.6%.
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 of 19% and Collateral Risk of 22.6%.
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
which for this programme is currently 33.8%.
Public-sector covered bonds:
The estimated Cover Pool Losses for this programme are 27.5%.
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 of 19.9% and Collateral Risk of 7.6%.
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
which for this programme is currently 15.2%.
TPI FRAMEWORK: Moody's assigns a TPI which indicates the likelihood
that timely payment will be made to covered bondholders following issuer
default. The effect of the TPI framework is to limit the covered
bond rating to a certain number of notches above the issuer's rating.
SENSITIVITY ANALYSIS
The robustness of a covered bond rating largely depends on the credit
strength of the issuer.
The number of notches by which the issuer's rating may be downgraded before
the covered bonds are downgraded under the TPI framework is measured by
the TPI Leeway. Based on the current TPI of "Probable" and "Probable-high"
for the mortgage covered bonds and public-sector covered bonds,
respectively, the TPI Leeway for both programmes is two notches,
meaning the issuer rating would need to be downgraded to B1 before the
covered bonds are downgraded, all other things being equal.
A multiple notch downgrade of the covered bonds might occur in certain
limited circumstances. Some examples might be (i) a sovereign downgrade
negatively affecting both the issuer's senior unsecured rating and the
TPI; (ii) a multiple notch downgrade of the issuer; 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 and TPI Leeway 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 methodology used in rating Banco CAM was "Rating Approach
to Covered Bonds Rating Methodology", published in March 2010.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the 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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a 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.
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 on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
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
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
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
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Moody's assigns new ratings to Banco CAM's covered bonds following transfer from CAM
