Approximately EUR357.7 million of debt securities affected
Frankfurt, April 23, 2010 -- Moody's Investors Service has downgraded the long-term credit ratings
of the following notes issued by Pyme Valencia 1, FTA:
- Class A2 notes: Downgraded to Aa3, previously Aaa
placed under review for downgrade on 23 February 2009
- Class B notes: Downgraded to Ba3, previously downgraded
to Baa2 and placed under review for downgrade on 16 July 2009
- Class C notes: Downgraded to Caa3, previously downgraded
to Caa1 and placed under review for downgrade on 16 July 2009
- Class D notes: Downgraded to C, previously downgraded
to Ca and placed under review for downgrade on 16 July 2009
Moody's initially assigned definitive ratings in July 2007.
Today's rating action concludes the rating review that was originally
initiated in February 2009. The downgrades on all outstanding rated
notes are motivated by worse-than-expected collateral performance
and concerns due to the lack of liquidity in the transaction following
the full depletion of the reserve fund and the breach of the swap rating
trigger.
In July 2009, Moody's downgraded the Class B, C and
D notes due to weak performance and left all rated notes, including
the Class A2 notes, on review for further possible downgrade.
Moody's maintained the ratings of the notes on review following
the downgrade of the originator, servicer and swap counterparty
of the transaction Banco de Valencia (15 June 2009).
As part of its review, Moody's considered the potential for further
performance deterioration in the current economic cycle, and the
exposure of the transaction to the real estate sector. The deterioration
of the Spanish economy has been reflected in Moody's negative sector outlook
for Spanish SME securitisation transactions ("EMEA ABS & RMBS:
2009 Review and 2010 Outlook", published in January 2010.)
Moody's applied its revised methodology for granular SME portfolios
in Europe, Middle East and Africa (EMEA). This revised methodology
was introduced on 17 March 2009.
Collateral Performance
To date, the transaction has been performing worse than the Spanish
SME index. Since the last review in July 2009, delinquency
levels have been volatile. Outstanding 90+ days delinquencies
decreased from 4.32% to 2.22% of current pool
balance between July 2009 and February 2010. In the same period
the cumulative 90+ days delinquencies in the transaction rose from
7.8% to 12.8% of original balance plus replenishments,
while the cumulative artificial write-off amount doubled during
the same period from 1.57% to 3.22%.
This increase prompted the full draw under the reserve fund which declined
from EUR5.5 million or 36% of its target amount in August
2009 to zero in September 2009. Since then, the reserve fund
has not built back up. In addition, the rising amount of
artificial write-offs could not be covered by excess spread and
reserve fund and led to a principal deficiency equal to EUR4.8
million or 1.36% of the outstanding pool balance as of the
last payment date in February 2010. Artificial write-offs
are considered as loans that are more than 12 months into arrears or are
considered as uncollectible by the servicer or originator.
Default Probability Adjustments
Moody's has revised its assumption of the default probability of the SME
debtors on updated portfolio data as of March 2010 provided by the management
company Europea de Titulización S.G.F.T,
S.A. Applying the revised methodology, Moody's
reached an equivalent rating in the single B range for the debtors operating
in the real estate sector, and in the low Ba range for the non-real-estate
debtors. In addition, Moody's made PD adjustments to reflect
the size of the debtors' companies. For approximately 22%
of the exposure, no company size information was available,
so Moody's considered the relevant borrowers as micro-SMEs.
Additionally, loans in arrears have been notched down depending
on the length of time the loans have been in arrears, while performing
loans outside the building and real estate sector with relatively long
seasoning have been notched up depending on their actual seasoning.
Revised WAL and DP Assumptions
Moody's estimates that the remaining weighted-average life of the
portfolio is equal to 4.8 years. As a consequence,
these revised assumptions have translated into an increase of the cumulative
mean default assumption to 25% of the current outstanding portfolio.
When converting this number into a cumulative mean default rate of original
balance plus replenishments, the revised expected cumulative default
rate is 20.9% compared to the 15% revised assumption
in July 2009. The top 20 debtors in the March pool-cut accounted
for approximately 27% of the outstanding portfolio (the effective
number in the portfolio was 161). The portfolio is characterised
by high sector concentrations, namely in the building and real estate
sector, and high geographical concentration in the region of Valencia.
Moody's used a Monte Carlo simulation to determine the default distribution
with a resulting coefficient of variation of 51%.
Other Assumptions and Sensitivities
The average recovery assumption was updated to 50% (stochastic
recovery rate) based on the level and nature of the properties guaranteeing
the underlying collateral. This compares to a fixed recovery rate
of 45% assumed at the last review date. The constant prepayment
rate (CPR) Moody's used in its cash flow model was maintained at 5%.
Moody's tested various sensitivities around these key assumptions
in order to determine its final view on the ratings. One specific
feature Moody's evaluated in these scenarios were the interest deferral
triggers and the benefit they provide to the Class A2 notes once they
have been hit.
Insufficient Liquidity in the Deal and Breach of Swap Rating Trigger
The main exposure to Banco de Valencia in this transaction is through
its servicing and swap counterparty role. Moody's notes that the
reserve fund of the transaction is fully depleted and that no other source
of liquidity is available in the transaction. Moody's believes
that the absence of liquidity in the transaction could impair the ability
of the issuer to make timely payment of interest on the notes, particularly
if there was a servicing transfer. Moody's also believes
that the lack of liquidity in this transaction increases the degree of
linkage between the rating of the servicer and the senior notes rating.
Banco de Valencia's downgrade from A3/P2 to Baa1/P2 led to the breach
of the second rating trigger under the swap agreement. Since July
2009, the bank has not been able to find a replacement or guarantor
for the swap agreement. The bank is still posting collateral as
per the swap documentation, which in Moody's opinion only
partially mitigates the linkage to Banco de Valencia acting as swap counterparty.
Moody's has incorporated these risks in its analysis in addition to the
performance analysis, which resulted in the downgrade of the Class
A2 notes to Aa3.
The Transaction
Pyme Valencia 1, FTA is a securitisation fund, which purchased
a pool of loans granted to Spanish SMEs and individuals originated by
Banco de Valencia. In June 2007, the static portfolio consisted
of 3,786 loans and 3,172 debtors. As end of March 2010,
these numbers stood at 1,541 loans and 1,363 debtors.
The original portfolio of loans was originated between 2000 and 2006,
with a weighted-average seasoning of 1.73 years and a weighted-average
remaining term of 7.86 years. Geographically, the
pool was concentrated in Valencia (62%), Murcia (15%)
and Madrid (7%). At closing, the concentration in
the building and real estate sector was 59.4% of the initial
portfolio amount, which is higher than the sector-average
concentration in the SME ABS portfolios. In the updated March portfolio,
the weighted-average seasoning equalled 4.74 and the remaining
term 10.1 years. The concentration in the building and real
estate sector was approximately 50% of the current balance.
The pool factor was 38% as of March 2010.
Meaning of Rating and Methodologies
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transaction. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors.
The principal methodologies used in rating this transaction were " Refining
the ABS SME Approach: Moody's Probability of Default Assumptions
in the Rating Analysis of Granular Small and Mid-sized Enterprise
portfolios in EMEA", March 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. Further
information on Moody's analysis of this transaction is available on www.moodys.com.
In addition, Moody's published a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
Moody's is closely monitoring the transaction. To obtain a copy
of Moody's New Issue Report or periodic Performance Overviews, please
visit Moody's website at www.moodys.com or contact our Client
Service Desk in London (+44-20-7772 5454).
Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt
Sebastian Hoepfner
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Pyme Valencia 1, FTA, Spanish SME ABS notes
