London, 27 April 2011 -- Moody's Investors Service announced today the following rating actions
on notes issued by IM Préstamos Fondos Cédulas, FTA
Issuer: IM Préstamos Fondos Cédulas, FTA
.EUR 344,100,000 Class A Notes due 2022 (currently
EUR 264,723,734.61 outstanding), Downgraded to
Baa3 (sf) on review for further possible downgrade; previously on
October 21, 2010 downgraded to Baa2 (sf)
.EUR 6,900,000 Class B Notes due 2022 (currently
EUR 5,100,704.94 outstanding), Downgraded to
B2 (sf) on review for further possible downgrade; previously on October
21, 2010 downgraded to B1 (sf)
.EUR 900,000 Class C Notes due 2022, Downgraded
to Caa1(sf) on review for further possible downgrade; previously
on October 21, 2010 downgraded to B3 (sf)
This transaction is a static cash CBO of portions of subordinated loans
funding the reserve funds of 10 (at closing 14) Spanish multi-issuer
covered bonds (SMICBs), which can be considered as a securitisation
of a pool of Cédulas. Each SMICB is backed by a group of
Cédulas which are bought by a Fund, which in turn issues
SMICBs. Cédulas holders are secured by the issuer's
entire mortgage book. The subordinated loans backing the IM Prestamos
transaction represent the first loss pieces in the respective SMICB structures
(or structured Cédulas). Therefore this transaction is exposed
to the risk of several Spanish financial institutions defaulting under
their mortgage covered bonds (Cédulas).
The Aaa (sf) rating of the EUR 40 m Liquidity Line remains unchanged.
RATINGS RATIONALE
Moodys said today's rating actions are a result of: (i) primarily,
the decline in credit quality of many of the issuers of Cédulas
which make up the SMICBs, and (ii) as a contributory factor,
the deterioration in the quality of the collateral backing the SMICBs.
In reaching its rating decisions, Moody's considers that should
a Cédulas issuer default, it is likely that the reserve funds
that form the underlying portfolio of IM Prestamos would require to be
drawn upon to make good the potential shortfall suffered by the underlying
Cédulas holders. The extent of such potential shortfall
is dependent on the level of over collateralisation and quality of the
issuer's underlying mortgage pool. Our analysis indicates
that in the light of such potential shortfalls, the credit quality
of the reserve funds of the 10 SMICBs that form the portfolio of IM Préstamos
Fondos Cédulas is presently more consistent with ratings in a Ba3(sf)-
Baa2(sf) range compared to a Ba1(sf)- A2(sf) range in Oct 2010.
Moody's undertook a number of sensitivity runs to incorporate (i)
a 15% and 30% stress to the default probabilities (DP)of
the underlying structured cedulas combined with correlations of c 50%
and 60%. . In the runs with DP and correlation stress,
model outputs for the Classes A/B/C notes were affected by around 0.5
-1 notches from the base case of no DP stress and 50% correlation.
Rating actions taken today are based on a consideration of the above scenarios
and other factors including the size and quality of the subordination
available to the rated tranches.
Moody's notes that the transaction is exposed to the credit quality
of cedulas originally issued by 41 Spanish financial institutions including
many savings banks (Cajas). These Cajas are involved in an ongoing
consolidation process which can take two main forms, one in which
participants consolidate in a new legal entity thus aggregating their
mortgage pools, the other a cold or virtual merger in which the
participants maintain their legal status and mortgage pools separation
while sharing certain resources and functions such as risk and liquidity
management. Moody's will continue to closely follow the impact
of this industry-wide consolidation on the rated notes.
Additionally, Moody's have recently revised their systemic
support assumptions for all Spanish banks including the Cajas.
For further details, please refer 'Moody's takes rating
actions on Spanish banks after Spain's downgrade to Aa2' published
on 24 march 2011 in which they cite (i) heightened financial pressure
on the sovereign and many weak banks, (ii) declining systemic importance
of many smaller and regional banks, and (iii) weakening future support
environment across Europe as the main drivers of the rating actions.
For recent rating actions on multiple Spanish multi-issuer covered
bonds please refer 'Moody's downgrades multiple Spanish multi-cedulas'
published on 25 March 2011. This includes the 10 SMICBs whose reserve
funds constitute the underlying pool of the IM Prestamos transaction.
Ratings of these 10 SMICBs remain on review for possible further downgrade;
accordingly, ratings of the notes issued by IM Prestamos also remain
on review for possible further downgrade.
Except as detailed above for the sensitivity runs, underlying cedulas
default probabilities and recovery rates used in our model are in line
with the covered bond rating methodology assumptions.
The relatively high credit quality of the reserve funds of these 10 SMICBs
is largely driven by high recovery rate assumptions on the underlying
Cedulas. The ratings of the IM Préstamos Fondos Cédulas,
FTA notes are thus sensitive to these recovery rate assumptions.
The principal methodology used in this rating was Moody's Approach to
Rating Corporate Collateralized Synthetic Obligations" published in September
2009.
Moody's relies on a simulation based framework, implemented
via CDOROM2.8TM, to generate default and recovery scenarios
for each asset in the portfolio and computes the associated loss to each
tranche in the structure.
A fuller explanation of the rating methodology used to rate SMICBs and
associated items may be found in the paper 'rating Spanish Multi-Issuer
Covered Bonds' published on 14 September 2009.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
6 months.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings; parties not involved in the ratings;
public information; confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Raja Iyer
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Neelam S. Desai
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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Moody's downgrades EUR 270.7m CDO Notes of IM Prestamos
