Moody's confirms the ratings of the senior tranches of three Spanish ABS SME transactions originated by Banesto, downgrades one junior tranche
Frankfurt am Main, April 16, 2013 -- Moody's Investors Service has today downgraded by one notch to Ca Class
C of PYMES BANESTO 2 and confirmed the ratings of the other tranches of
this deal which were previously on review for downgrade. The ratings
of the tranches of EMPRESAS BANESTO 5 and EMPRESAS BANESTO 6, which
were on review for downgrade were also all confirmed. Deleveraging
has led to sufficient credit enhancement for the tranches whose ratings
were confirmed today, enabling them to address sovereign risk and
exposure to counterparty risk.
Today's rating action concludes the review for downgrade initiated
by Moody's on 2 July 2012, following Moody's downgrade of Spanish
government bond ratings to Baa3 from A3 on 13 June 2012 (http://www.moodys.com/research/Moodys-downgrades-to-A3sf-notes-in-328-Spanish-ABS-RMBS--PR_249914).
All three affected transactions are Spanish asset-backed securities
(ABS) transactions primarily backed by loans to small and medium-sized
enterprises (SME), but the pools of BANESTO EMPRESAS 5 and BANESTO
EMPRESAS 6 also include a sizeable proportion of loans to large corporates,
creating some borrower concentration in the two portfolios (with the top
10 borrowers accounting for 24% and 38% of the total portfolio
of BANESTO EMPRESAS 5 and BANESTO EMPRESAS 6, respectively).
Banco Espanol de Credito, S.A. (Banesto, Baa3
review for upgrade/P-3 review for upgrade) originated the transactions.
See towards the end of the ratings rationale section of this press release
for a detailed list of affected ratings.
RATINGS RATIONALE
Today's confirmation of almost all tranches in the three transactions
reflects the presence of adequate credit enhancement to address sovereign
risk. The introduction of new adjustments to Moody's modeling assumptions
to account for the effect of deterioration in sovereign creditworthiness
has, to varying degrees, affected all of the Spanish SME ABS
included in today's rating action. This action also reflects the
revision of key collateral assumptions and increased exposure to low rated
counterparties. Moody's confirmed the ratings of securities whose
credit enhancement and structural features provided enough protection
against sovereign and counterparty risk. Class C of EMPRESAS BANESTO
5 and Class B of EMPRESAS BANESTO 6 are strongly linked to Banesto's
rating where the reserve fund is held, thus limiting the upgrade
potential despite the very high levels of credit enhancement.
Class C of PYMES BANESTO 2 is now fully exposed to future defaults since
the reserve fund is fully depleted and was thus downgraded to Ca .
The determination of the applicable credit enhancement that drives today's
rating actions reflects the introduction of additional factors in Moody's
analysis to better measure the impact of sovereign risk on structured
finance transactions (see "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk", 11 March 2013). This report
is available on www.moodys.com and can be accessed via the
following link: (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF319988)
-- 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, and therefore the maximum rating that
Moody's will assign to a domestic Spanish issuer including structured
finance transactions backed by Spanish receivables, is A3.
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 transactions and the applicable
credit enhancement for this rating uniquely determine portfolio distribution
volatility, 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, in all three transactions.
For PYMES BANESTO 2, the current default assumption is 17.4%
of the current portfolio and the assumption for the fixed recovery rate
is 45.0%. Moody's has increased the CoV to 58.9%
from 42.0%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 24.5%.
For EMPRESAS BANESTO 5, the current default assumption is 16.4%
of the current portfolio and the assumption for the fixed recovery rate
is 40.0%. Moody's has increased the CoV to 59.5%
from 41.3%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 24.5%.
For EMPRESAS BANESTO 6, the current default assumption is 14.4%
of the current portfolio and the assumption for the fixed recovery rate
is 35.0%. Moody's has increased the CoV to 56%
from 42.5%, which, combined with the revised
key collateral assumptions, resulted in a portfolio credit enhancement
of 27%.
-- Counterparty Exposure Has Prompted Action
The conclusion of Moody's rating review also takes into consideration
exposure to 1) Banesto, which acts as the servicer, swap counterparty
and collection account bank in all three transactions; and 2) Santander
UK PLC (A2/P-1), which acts as issuer account bank in PYMES
BANESTO 2.
Today's rating action incorporates increased exposure to commingling risk
with Banesto. In its role as servicer for PYMES BANESTO 2,
Banesto transfers the collections from the portfolio within two days from
the collection account to a Santander UK account. The reserve funds
in EMPRESAS BANESTO 5 and EMPRESAS BANESTO 6 are deposited with Banesto
and are therefore exposed to the same default risk as Banesto.
As part of its analysis, Moody's also assessed the exposure to Banesto
as swap counterparty in all three deals. The revised /confirmed
ratings of the notes are consistent with this exposure.
-- 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
Rating Implementation Guidance report, "The Temporary Use of Cash
in Structured Finance Transactions: Eligible Investment and Bank
Guidelines", 18 March 2013; and the 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, which Moody's then weights
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 transaction(s) affected by today's
rating action(s), Moody's has 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.
Issuer: EMPRESAS BANESTO 5, FTA
....EUR1344M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR96M B Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR160M C Notes, Confirmed at Baa3
(sf); previously on Jul 2, 2012 Baa3 (sf) Placed Under Review
for Possible Downgrade
Issuer: EMPRESAS BANESTO 6, FTA
....EUR935M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR165M B Notes, Confirmed at Baa2
(sf); previously on Jul 2, 2012 Baa2 (sf) Placed Under Review
for Possible Downgrade
Issuer: Fondo de Titulizacion de Activos PYMES BANESTO 2
....EUR541.7M A2 Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR24.3M B Notes, Confirmed
at B1 (sf); previously on Jul 2, 2012 B1 (sf) Placed Under
Review for Possible Downgrade
....EUR34M C Notes, Downgraded to Ca
(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 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.
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
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 downgrades 1 note and confirms other notes in three Spanish ABS SME transactions
