London, 11 April 2013 -- Moody's Investors Service has today confirmed the ratings of class A,
B and C in GC Sabadell Empresas 4, FTA, a Spanish asset-backed
securities (ABS) transactions backed by small ticket leases. High
levels of credit enhancement, which protect 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.
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.
Credit enhancement has built up to high levels as a result of the deleveraging
of this transaction. The introduction of new adjustments to Moody's
modelling assumptions to account for the effect of deterioration in sovereign
creditworthiness has had no negative effect on the ratings in GC Sabadell
Empresas 4 .
-- 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.
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 determine 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
Following Moody's update of its methodology, the rating agency
increased its CoV, which is a measure of volatility, to 76.5%
from 54.7%. Together with a mean default probability
of 13.0% on current pool balance and a recovery rate of
35.0%, this volatility increase corresponds to a portfolio
credit enhancement of 26.2%.
Moody's maintained its default and recovery rate assumptions for this
transaction, which it updated on 18 December 2012 (see "Moody's
updates key collateral assumptions in Spanish ABS transactions backed
by loans to SMEs" [http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Spanish-ABS-transactions-backed--PR_262512]).
-- Counterparty Exposure Has Increased
The conclusion of Moody's rating review also takes into consideration
the increased exposure to commingling due to weakened counterparty creditworthiness.
Banco Sabadell, S.A. (Ba1), acts as servicer
and transfers collections daily to the issuer account at Banco Santander
S.A. (Baa2). The reserve fund also resides at Banco
Santander. The reserve fund represents 25.6% of the
current pool balance.
Moody's has incorporated into its analysis the potential default of Banco
Sabadell, which could expose the transaction to a commingling loss
on the collections as well as the potential default of Banco Santander,
which could leave the transaction without the support of the reserve fund.
Banco Sabadell also acts as swap counterparty in the transaction and has
made a deposit of collateral in an account at Banco Santander.
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 the Request for Comment, "Approach to Assessing Linkage to Swap
Counterparties in Structured Finance Cashflow Transactions: Request
for Comment", 02 July 2012.
In reviewing this transaction, 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 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 transaction affected by today's rating action,
Moody's adjusted some inputs to reflect the new approach described
above.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's 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 Sabadell Empresas 4, FTA
....EUR525.8M A Certificate,
Confirmed at A3 (sf); previously on Jul 2, 2012 Downgraded
to A3 (sf) and Placed Under Review for Possible Downgrade
....EUR25.1M B Certificate, Confirmed
at A3 (sf); previously on Jul 2, 2012 A3 (sf) Placed Under
Review for Possible Downgrade
....EUR69.1M C Certificate, Confirmed
at Ba2 (sf); previously on Jul 2, 2012 Ba2 (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 this transaction 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.
Anne-Sophie Spirito
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Gintz
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sebastian Schranz
Analyst
Moody's Deutschland GmbH
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
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Moody's confirms ratings in GC Sabadell Empresas 4, Spanish lease ABS
