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Rating Action:

Moody's downgrades Spanish RMBS notes issued by GC Pastor Hipotecario 5

17 Nov 2010

Approximately EUR 480 million of rated debt securities affected

London, 17 November 2010 -- Moody's Investors Service announced today that it has downgraded the ratings of the class A2, B and C notes issued by GC Pastor Hipotecario 5.

Issuer: GC Pastor Hipotecario 5

....EUR492.8M A2 Certificate, Downgraded to Aa2 (sf); previously on Nov 30, 2009 Aaa (sf) Placed Under Review for Possible Downgrade

....EUR24.9M B Certificate, Downgraded to Ba2 (sf); previously on Nov 30, 2009 A1 (sf) Placed Under Review for Possible Downgrade

....EUR7.3M C Certificate, Downgraded to Ca (sf); previously on Nov 30, 2009 Baa2 (sf) Placed Under Review for Possible Downgrade

The ratings of the notes in GC Pastor Hipotecario 5 were placed on review for possible downgrade given deterioration in the performance of pool collateral and economic environment in Spain.

RATINGS RATIONALE

Today's rating action concludes the review and takes into consideration the worse-than-expected performance of the collateral. It also reflects Moody's negative sector outlook for Spanish RMBS and the weakening of the macro-economic environment in Spain, including high unemployment rates projected for 2010.

GC Pastor Hipotecario 5 is a securitisation of loans granted to individuals and small and medium enterprises (SMEs) secured by a first-lien mortgage guarantee. The loans granted to individuals secured on residential properties represent 85% of current portfolio, while 15% of the pool are loans granted to SME.

The ratings of the notes take into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Aaa Credit Enhancement (MILAN Aaa CE) and the lifetime losses (expected loss), as well as the transaction structure and any legal considerations as assessed in Moody's cash flow analysis. The expected loss and the Milan Aaa CE are the two key parameters used by Moody's to calibrate its loss distribution curve, used in the cash-flow model to rate European RMBS transactions

Portfolio Expected Loss:

Moody's has reassessed its lifetime loss expectation for GC Pastor Hipotecario 5 taking into account the collateral performance to date as well as the current macroeconomic environment in Spain. GC Pastor Hipotecario 5 is performing worse than Moody's expectations as of closing. The share of loans more than 90 days has decreased to 2.36% of current pool balance as at September 2010, down from 3.16% in December 2009. But, cumulative defaults have risen rapidly over the same period, reaching 2.21% of original pool balance as at September 2010, up from 0.49% in December 2009. Moody's performed a loan-by-loan analysis of all delinquent and written-off loans in the deal. This analysis highlighted that loans originated to SME have a significantly greater write-off rate than loans originated to individuals. The write-off rate for loans granted to SME is between 3 to 4 times the write-off rate of loans granted to individuals. As at September 2010, the SME sub-pool contributed to almost half of the total cumulative defaults even if it only represents 15% of the overall securitised pool.

The primary source of assumption uncertainty is the current macroeconomic environment in Spain. Moody's expect the portfolio credit performance to remain under stress, as Spanish unemployment continued to be elevated. Moody's believe that the anticipated tightening of Spanish fiscal policies is likely to weigh on the recovery in the Spanish labour market and constraint further Spanish households finances. On the basis of the rapid increase in defaults in the transaction and Moody's negative sector outlook for Spanish RMBS, we have updated the portfolio expected loss assumption to 3.1% of original pool balance, up from 0.74% at closing.

MILAN Aaa CE:

Moody's split the portfolio into two sub-pools based on the debtor characteristics (individuals & SME). For the sub-pool of loans granted to individuals, Moody's has assessed the loan-by-loan information to determine a MILAN Aaa CE. For the SME subpool (15% of the current pool), Moody's derived its default distribution using the ABS SME approach, based on the default probability contribution of each single borrower, and the correlation among the different industries represented in the portfolio. Moody's translated the outputs of the ABS SME approach into a lognormal distribution for the SME subpool. Once both lognormal distributions (SME sub-pool and individual sub-pool) were obtained, Moody's conservatively approximated the combined distribution taking into consideration 100% correlation between both pools. Moody's has increased its overall MILAN Aaa CE assumptions to 12%, up from 5.79% at closing. The increase in the MILAN Aaa CE is mainly driven by the performance of the SME debtors in the portfolio.

The rating addresses the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and principal with respect of the notes by the legal final maturity. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

GC Pastor Hipotecario 5 closed in June 2007. The transaction is backed by a portfolio of first-ranking mortgage loans granted to individuals and small and medium enterprises (SMEs) secured by a first-lien mortgage guarantee. The loans were originated by Banco Pastor (A3/P2) between 2000 and 2006, with the current weighted average loan-to-value standing at 57%. A limited share of the securitised mortgage loans has been originated via external brokers or "Agente de Promocion Inmobiliaria", representing about 4% of the current pool balance at the end of September 2010. About 5% of the loans were originated to non-Spanish nationals.

For details on the deal structure, please refer to the "GC Pastor Hipotecario 5" new issue report. For more information on the servicing practices of Banco Pastor, please refer to "Moody's updates on Banco Pastor, S.A. as servicer of 5 Spanish RMBS deals". Both reports are available on www.moodys.com.

Hedging agreement: The transaction benefits from an interest rate swap provided by La Caixa (Aa2/P1). Following its downgrade, Banco Pastor has been replaced as swap counterparty by La Caixa in December 2008, which is in line with the requirements described in Moody's report titled "the Framework for De-linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions."

Paying Agent: Banco Sabadell (A2/P1) acts as paying agent of the Fondo since November 2008.

Treasury Bank Accounts: All payments collected under the loans in the portfolio are transferred, every week, to the treasury account held by Banco Sabadell (A2/P1).

Reserve fund: The rapidly increasing levels of defaulted loans ultimately resulted in draws to the reserve fund. The reserve fund is currently fully depleted. The amortization of the mezzanine and junior notes is likely to remain sequential as a consequence of this breach of pro-rata amortization triggers.

Principal deficiency ledger: GC Pastor Hipotecario 5 has seen EUR131,183 unpaid PDL at the end of September 2010.

The principal methodologies used in monitoring this transaction were Moody's MILAN Methodology for Rating Spanish RMBS published in July 2008 and Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction published in December 2008.

Moody's analysed the sub-pool of loans granted to SME using the rating methodology for granular SME transactions in EMEA as described in the following Rating Methodology reports: "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 "Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa", June 2007.Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Please also refer to the "Spanish RMBS August 2010 Indices", which is available on www.moodys.com in the Industry / Sector Research sub-directory under the Research & Ratings tab.

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 six months.

REGULATORY DISCLOSURES

The ratings have 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 ratings are the following: parties involved in the ratings, parties not involved in the ratings, public information, and 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 purpose 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.

Additional research, including the pre-sale report for this transaction and reports for prior transactions, are available at www.moodys.com. In addition Moody's publishes 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 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
Carole Bernard
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Barbara Rismondo
VP - Senior Credit Officer
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

Moody's downgrades Spanish RMBS notes issued by GC Pastor Hipotecario 5
No Related Data.
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