Frankfurt am Main, April 18, 2013 -- Moody's Investors Service has today confirmed the ratings of eight notes
and upgraded the ratings of three notes issued by GC FTPYME Sabadell 4,
FTA, GC FTPYME Sabadell 5, FTA and GC FTPYME Sabadell 6,
FTA. Sufficient credit enhancement, which protects against
sovereign and counterparty risk, primarily drove the rating action.
Today's rating action concludes the review for downgrade initiated by
Moody's on 02 July 2012. These three transactions are Spanish asset-backed
securities transactions backed by loans to small and medium-sized
enterprises (SME ABS) originated by Banco Sabadell, S.A.
(Ba1 / NP).
For a detailed list of the affected ratings, see towards the end
of the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the availability of sufficient
credit enhancement to address sovereign and increased counterparty risk.
The introduction of new adjustments to Moody's modelling assumptions to
account for the effect of deterioration in sovereign creditworthiness
and the revision of key collateral assumptions and increased exposure
to lowly rated counterparties has had no negative effect on the ratings
of all classes of notes in these transactions.
Furthermore, the current level of credit enhancement available under
the Class B (16.75%) of GC FTPYME Sabadell 4 in the form
of subordination from Class C and cash (via the reserve fund of 2.98%)
is sufficient to support an upgrade to Baa3 (sf) from Ba1 (sf) for Class
B. In GC FTPYME Sabadell 5, the reserve fund of 3.96%
is sufficient to support the upgrade of Class C to Caa1 (sf) from Caa3
(sf). In GC FTPYME Sabadell 6, the credit enhancement of
10.3% below the Class B (in the form of subordination from
the Class C as well as 2% reserve fund) allows for an upgrade to
Ba2 (sf) from B2 (sf).
- Additional Factors Better Reflect Increased Sovereign Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the local currency country risk
ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's intends
to better reflect increased sovereign risk in its quantitative analysis,
in particular for mezzanine and junior tranches. See "Structured
Finance Transactions: Assessing the Impact of Sovereign Risk" for
a more detailed explanation of the additional parameters. This
report is available on www.moodys.com and can be accessed
via the following link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319988.
The Spanish country ceiling is A3, which is the maximum rating that
Moody's will assign to a domestic Spanish issuer including structured
finance transactions backed by Spanish receivables. The portfolio
credit enhancement represents the required credit enhancement under the
senior tranche for it to achieve the country ceiling. By lowering
the maximum achievable rating, the revised methodology alters the
loss distribution curve and implies an increased probability of high loss
scenarios.
Under the updated methodology incorporating sovereign risk on ABS transactions,
loss distribution volatility increases to capture increased sovereign-related
risks. Given the expected loss of a portfolio and the shape of
the loss distribution, the combination of the highest achievable
rating in a country for structured finance and the applicable credit enhancement
for this rating uniquely determines the volatility of the portfolio distribution,
which the coefficient of variation (CoV) typically measures for ABS transactions.
A higher applicable credit enhancement for a given rating ceiling or a
lower rating ceiling with the same applicable credit enhancement both
translate into a higher CoV.
- Moody's Revises Key Collateral Assumptions
Moody's maintained its default and recovery rate assumptions for the three
transactions, which it updated on 18 December 2012 (see "Moody's
updates key collateral assumptions in Spanish ABS transactions backed
by loans to SMEs and leases" [http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Spanish-ABS-transactions-backed--PR_262512]).
According to the updated methodology, Moody's increased the CoV,
which is a measure of volatility.
For GC FTPYME Sabadell 4, the current default assumption is 13.2%
of the current portfolio and the assumption for the fixed recovery rate
is 55%. Moody's has increased the CoV to 101.2%
from 48.55%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 23.9%.
For GC FTPYME Sabadell 5, the current default assumption is 10%
of the current portfolio and the assumption for the fixed recovery rate
is 50%. Moody's has increased the CoV to 110.6%
from 44.5%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 22.4%.
For GC FTPYME Sabadell 6, the current default assumption is 12.6%
of the current portfolio and the assumption for the fixed recovery rate
is 50%. Moody's has increased the CoV to 91.9%
from 45.4%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 22.3%.
- Moody's Has Considered Exposure to Counterparty Risk
The conclusion of Moody's rating review also takes into consideration
the increased exposure to commingling due to weakened counterparty creditworthiness.
In all three transactions, Banco Sabadell acts as servicer and transfers
collections every day to the issuers' accounts at Barclays Bank
Plc (A2/P-1). The reserve funds also reside at Barclays
Bank Plc for the three transactions. Moody's has incorporated into
its analysis the potential default of Banco Sabadell, which could
expose each transaction to a commingling loss on the collections.
Banco Sabadell acts as swap counterparty in the three transactions.
As part of its analysis, Moody's assessed the exposure to the swap
counterparty, which does not have a negative effect on the rating
levels at this time.
- Other Developments May Negatively Affect the Notes
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
As the euro area crisis continues, the ratings of structured finance
notes remain exposed to the uncertainties of credit conditions in the
general economy. The deteriorating creditworthiness of euro area
sovereigns as well as the weakening credit profile of the global banking
sector could further negatively affect the ratings of the notes.
Moody's describes additional factors that may affect the ratings in its
Request for Comment, "Approach to Assessing Linkage to Swap Counterparties
in Structured Finance Cashflow Transactions: Request for Comment",
02 July 2012.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted considering
the probabilities of the inverse normal distribution assumed for the portfolio
default rate. In each default scenario, Moody's calculates
the corresponding loss for each class of notes given the incoming cash
flows from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss for each tranche is the sum product
of the probability of occurrence of each default scenario and the loss
derived from the cash flow model in each default scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
When remodelling the transactions affected by today's rating actions,
some inputs have been adjusted to reflect the new approach described above.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moodys Approach to
Rating CDOs of SMEs in Europe", published in February 2007.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
The revised approach to incorporating country risk changes into structured
finance ratings forms part of the relevant asset class methodologies,
which Moody's updated and republished or supplemented on 11 March 2013
("Incorporating Sovereign risk to Moody's Approach to Rating CDOs of SMEs
in Europe" ), along with the publication of its Special Comment
"Structured Finance Transactions: Assessing the Impact of Sovereign
Risk".
Other factors used in these ratings are described in "The Temporary Use
of Cash in Structured Finance Transactions: Eligible Investment
and Bank Guidelines", published in March 2013.
LIST OF AFFECTED RATINGS
Issuer: GC FTPYME Sabadell 4, FTA
....EUR162.3M A(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR24M B Notes, Upgraded to Baa3
(sf); previously on Jul 2, 2012 Ba1 (sf) Placed Under Review
for Possible Downgrade
....EUR14.3M C Notes, Confirmed
at Caa3 (sf); previously on Jul 2, 2012 Caa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: GC FTPYME Sabadell 5, Fondo de Titulizacion de Activos
....EUR880.3M A2 Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR82.8M A3(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
....EUR40M B Notes, Confirmed at Baa2
(sf); previously on Jul 2, 2012 Baa2 (sf) Placed Under Review
for Possible Downgrade
....EUR26.9M C Notes, Upgraded
to Caa1 (sf); previously on Jul 2, 2012 Caa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: GC FTPYME Sabadell 6, Fondo de Titulizaci?n
de Activos
....EUR635.4M A2 Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR134.1M A3(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR35.5M B Notes, Upgraded
to Ba2 (sf); previously on Jul 2, 2012 B2 (sf) Placed Under
Review for Possible Downgrade
....EUR20M C Notes, Confirmed at Caa3
(sf); previously on Jul 2, 2012 Caa3 (sf) Placed Under Review
for Possible Downgrade
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
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 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 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 rating action, and
whose ratings may change as a result of this 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.
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.
Ludovic Thebault
Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Monica Curti
Vice President - Senior Analyst
Structured Finance Group
Telephone:+39-02-9148-1100
Anne-Sophie Spirito
AVP-Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's confirms 8 notes and upgrades 3 notes in 3 Banco Sabadell Spanish SME ABS transactions
