Madrid, March 15, 2013 -- Moody's Investors Service has today downgraded by two to six notches the
ratings of seven junior notes and by one to two notches the ratings of
three senior notes in four Spanish residential mortgage-backed
securities (RMBS) transactions: Bankinter 2, FTH; Bankinter
3, FTH; Bankinter 4, FTH; and Bankinter 5,
FTH. At the same time, Moody's confirmed the rating
of one security in Bankinter 3. Insufficiency of credit enhancement
to address sovereign risk and exposure to counterparty risk have prompted
today's action.
Today's rating action concludes the review of four Spanish RMBS
transactions placed on review 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).
This rating action also concludes the review of three Spanish RMBS transactions
placed on review on 23 November 2012, following Moody's revision
of key collateral assumptions for the entire Spanish RMBS market (http://www.moodys.com/research/Moodys-review-of-Spanish-RMBS-sector-triggers-rating-actions-on--PR_260528
.
See towards the end of the ratings rationale section of this press release
for a detailed list of affected ratings.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
to address sovereign risk. The rating action for Bankinter 2's
A4 tranche , also reflects increased counterparty risks.
Moody's confirmed the ratings of securities whose credit enhancement
and structural features provided enough protection against sovereign and
counterparty risk.
The determination of the applicable credit enhancement driving 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.
Moody's Individual Loan Analysis Credit Enhancement (MILAN CE) represents
the required credit enhancement under the senior tranche for it to achieve
the country ceiling. By lowering the maximum achievable rating
for a given MILAN, the revised methodology alters the loss distribution
curve and implies an increased probability of high loss scenarios.
-- Exposure to Counterparty Risk
The conclusion of Moody's rating review also takes into consideration
the exposure to Bankinter (Ba1/NP), acting either as issuer account
bank, swap counterparty or subordinated credit provider.
The inability of key transaction parties to perform their roles and difficulty
in replacing them in certain stressed scenarios increase the risk of payment
disruption and performance deterioration in structured finance transactions.
Moody's approach for addressing such counterparty risks is described
in "The Temporary Use of Cash in Structured Finance Transactions:
Eligible Investment and Bank Guidelines" and "Approach to
Assessing Linkage to Swap Counterparties in Structured Finance Cashflow
Transactions". These approaches have been subject to two
Request for Comment.
The downgrade of the rating of Bankinter 2's A4 tranche reflects
the failure to mitigate increased exposure to Bankinter as subordinated
credit provider. The subordinated credit is in place to provide
available funds to duly fulfil certain payment or withholding obligations
of the fund, in the order of priority of payments provided for therein,
if the available funds fall short.
As part of its analysis Moody's assessed the exposure of Bankinter
3 and Bankinter 4 to Bankinter as swap counterparty. The revised
ratings of the notes, which are driven by the insufficiency of credit
enhancement to address sovereign risk, are consistent with this
exposure.
Bankinter is the Issuer Account Bank for Bankinter 5, however the
guarantee of Crédit Agricole CIB mitigates 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 "The Temporary Use of Cash in Structured Finance Transactions:
Eligible Investment and Bank Guidelines: Request for Comment" (http://www.moodys.com/research/The-Temporary-Use-of-Cash-in-Structured-Finance-Transactions-Eligible--PBS_SF289341
) and "Approach to Assessing Linkage to Swap Counterparties in Structured
Finance Cashflow Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772
), both published on 2 July 2012.
The reserve fund in Bankinter 3 is not amortising following the breach
of one of its triggers, which compares portfolio weighted average
spread to the sum of (1) the average spread of classes A and B plus (2)
40 basis points. Moody's confirmed the rating of the senior
tranche in this transaction under the assumption that this trigger will
not cure in the medium term. If the trigger cures and the reserve
fund starts to amortise, the ratings of the notes may be negatively
affected.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Moody's Approach to
Rating RMBS Using the MILAN Framework published in March 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
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 lognormal 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 or EL for each tranche is the sum product
of (1) the probability of occurrence of each default scenario; and
(2) 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.
LIST OF AFFECTED SECURITIES
Issuer: BANKINTER 2 FONDO DE TITULIZACION HIPOTECARIA
....EUR222.5M A4 Notes, Downgraded
to Baa1 (sf); previously on Nov 23, 2012 Confirmed at A3 (sf)
....EUR12.8M B Notes, Downgraded
to B1 (sf); previously on Nov 23, 2012 Downgraded to Baa1 (sf)
and Remained On Review for Possible Downgrade
Issuer: BANKINTER 3 FONDO DE TITULIZACION HIPOTECARIA
....EUR1273.6M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR33.7M B Notes Downgraded to
Baa3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR15.2M C Notes, Downgraded
to Ba2 (sf); previously on Jul 2, 2012 Baa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: BANKINTER 4 FONDO DE TITULIZACION HIPOTECARIA
....EUR987.6M A Notes, Downgraded
to Baa2 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR21.5M B Notes, Downgraded
to Ba1 (sf); previously on Nov 23, 2012 Downgraded to Baa1
(sf) and Remained On Review for Possible Downgrade
....EUR15.9M C Notes, Downgraded
to B2 (sf); previously on Jul 2, 2012 Baa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: BANKINTER 5 FONDO DE TITULIZACION HIPOTECARIA
....EUR684.1M ANotes, Downgraded
to Baa2 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
....EUR14.9M B Notes, Downgraded
to Ba2 (sf); previously on Nov 23, 2012 Downgraded to Baa1
(sf) and Remained On Review for Possible Downgrade
....EUR11M C Notes, Downgraded to B2
(sf); previously on Jul 2, 2012 Baa3 (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.
Maria Turbica Manrique
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Annabel?Schaafsma
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades 10 notes in four Bankinter Spanish RMBS transactions
