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Global Credit Research - 26 Jul 2010
Approximately EUR 14,864.7 million of debt securities affected
Madrid, July 26, 2010 -- Moody's Investors Service has assigned the following provisional rating
to the notes that will be issued ICO Mediacion II AyT, F.T.A.
EUR14,864.7M Class A Notes, Assigned (P)Aaa
The provisional rating addresses the expected loss posed to investors
by the legal final maturity (20 November 2033).
This is a static collateralized loan obligation (CLO) related to a EUR
22,868.7 million par value portfolio of financing lines denominated
in Euros granted by Instituto de Crédito Oficial ("ICO",
Aaa/P-1, on review for downgrade) to more than 90 financial
institutions in Spain. It is a concentrated portfolio, where
10 institutions represents approximately 70% of the portfolio.
At closing the Fondo, a newly formed limited liability entity incorporated
under the laws of Spain, will issue one class of rated notes and
an unrated loan to finance the purchase of the financing lines (at par).
Moody's analyzed and will monitor this transaction primarily using the
methodology and its supplements described in the Moody's Special Reports
--Moody's Approach to Rating the CDOs of SMEs in Europe
--Moody's Approach to Rating Collateralized Loan Obligations
--Moody's Approach to Rating Corporate Collateralized Synthetic
Obligations (September 2009)
--Framework for De-Linking Hedge Counterparty Risks
from Global Structured Finance Cashflow Transactions (May 2007)
These reports 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 issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. 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.
As mentioned in the methodology, Moody's used in combination its
CDOROM model (to derive the default distribution of the securitized portfolio)
and ABSROM cash-flow model to determine the potential loss incurred
by the notes under each loss scenario. In parallel, Moody's
also considered non-modeled risks (such as commingling, set-off
and counterparty risk). Given the size of this transaction,
particular attention was given to the commitment of ICO under the unfunded
line of credit (5bn size). All of them were properly mitigated
through structural features and downgrade triggers in a way consistent
with the rating assigned.
Specifically for this transaction Moody's adjusted some of the quantitative
assumptions as follows:
i- For obligors where the default probability couldn't be
inferred from public or private ratings (about 4% of the portfolio),
Moody's assumed a default probability consistent with a Caa2 rating.
For these exposures the assumed recovery rate was also decreased from
35% (the standard assumption for senior unsecured debt in Spain)
to 15% in light of the increased uncertainty and reliance on this
ii- Given the characteristics of the portfolio (exclusively exposed
to a wide representation of Spain's financial industry), the
rating of this transaction shows a strong linkage to Spain sovereign's
rating. On the 30th of June 2010 Moody's placed Spain's
Aaa sovereign rating under review for possible downgrade. As stated
in the press release "if at the conclusion of the review,
Spain's ratings are lowered, it would most likely be by one,
or at most two notches.". In order to de-link
today's transaction's from such a potential downgrade,
Moody's further stressed the default probability of the portfolio
to account for the implications that Spain's potential downgrade could
have on each individual financial institution. It is noteworthy
however that any rating action on the Spanish sovereign rating,
or any of the financial institution in excess of the magnitudes contemplated
in this analysis could lead to a downgrade of the notes rated today.
The resulting key assumptions of Moody's analysis for this transaction
are as follows:
- The portfolio average default probability after stresses of around
5.2%, consistent with a Ba1 for WAL of the portfolio;
- An average pair-wise asset correlation of 50%;
- An average mean recovery rate of 34%; and
- A weighted average life of 3.36 years
The V Score for this transaction indicates Medium/High uncertainty about
critical assumptions. This is in line with level of uncertainty
applicable to the Spanish SME ABS Sector but higher than similar Spanish
CLO transactions. The primary source of uncertainty stems from
the current situation of Spain's sovereign rating being under review
for downgrade. As mentioned earlier this was mitigated by the use
of more conservative default probability assumptions.
Moody's also ran sensitivities around key parameters for the rated notes.
For instance, if the assumed default probability of 5.2%
used in determining the initial rating was changed to 11.6%
and the recovery rate of 34% was changed to 14%, the
model-indicated rating for the Class A Notes would change from
Aaa to Aa3.
Additional research including a new issue report for this transaction
is available at www.moodys.com. The special reports,
"V Scores and Parameter Sensitivities in the EMEA Small-to-Medium
Enterprise ABS Sector" and "V Scores and Parameter Sensitivities in the
Global Cash Flow CLO Sector" are also available on moodys.com.
Moody's issues provisional ratings in advance of the final sale of the
securities. The ratings, however, only represent Moody's
preliminary credit opinion. Upon conclusive review of all transaction
and associated documents, Moody's will endeavour to assign definitive
ratings to the notes. A definitive rating may differ from a provisional
Moody's will monitor this rating. Any change in the rating will
be publicly disseminated by Moody's through normal print and electronic
media in accordance with Moody's standard practice at the time.
For further information please visit Moodys.com or contact Moody's
London client service desk on +44 (0) 20 7772-5454.
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Javier Hevia Portocarrero
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns provisional rating to CDO Notes issued by ICO Mediacion II
No Related Data.
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