Approximately EUR 950 million of rated debt securities affected
London, 21 December 2010 -- Moody's Investors Service announced today that it has downgraded the ratings
of the class D notes issued by Hipocat 8 and all notes issued by Hipocat
17. A detailed list of the rating actions is provided at the end
of this press release.
The ratings of all notes in Hipocat 17 and most junior notes in Hipocat
8 were placed on review for possible downgrade in August 2010 following
defaults reporting errors.
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.
In summer 2010, Moody's noted that the share of written-off
loans reported in the Hipocat series managed by Gestión de Activos
Titulizados (GaT) had been understated.(For more details,
please refer to press release "Moody's placed on review notes in
3 Hipocat Spanish RMBS and updates on deals managed by GaT" published
on 11th of August 2010). For this review, Moody's has
received final restated amounts of defaulted loans as reported in latest
investor reports.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pools, 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 Hipocat 8 and
17 taking into account the collateral performance to date as well as the
current macroeconomic environment in Spain.
Hipocat 8 and 17 are performing worse than Moody's expectations as of
closing. Cumulative write-offs rose to 1.46%
and 1.52% of original pool balance in Hipocat 8 and 17 in
October 2010 respectively, up from 0.98% and 1.13%
respectively a year earlier. The share of 90d+ arrears is
standing at 1.07% of current pool balance in Hipocat 8 and
0.56% in Hipocat 17 at the end of October 2010. The
rapidly increasing levels of defaulted loans ultimately resulted in draws
to the reserve fund in Hipocat 8, currently at 82% of target.
The reserve fund in Hipocat 17 is currently at target level.
Moody's expect the portfolio credit performance to continue to be
under stress, as Spanish unemployment remains 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. Moody's has also concerns
over the timing and degree of future recoveries in a weaker Spanish housing
market. On the basis of the rapid increase in defaults in the transactions
and Moody's negative sector outlook for Spanish RMBS, we have
updated the portfolio expected loss assumption to 1.5% of
original pool balance in Hipocat 8 and 2.6% in Hipocat 17,
up from 0.80% and 1.2% respectively.
MILAN Aaa CE:
Moody's has assessed the loan-by-loan information for Hipocat
8 and Hipocat 17 to determine the MILAN Aaa CE. Moody's has increased
its MILAN Aaa CE assumptions for Hipocat 8 to 15.5%,
up from 6.7% at closing. Milan Aaa CE for Hipocat
17 was increased to 9%, up from 3.75%.
The increase in the MILAN Aaa CE reflects the high geographical concentration
in Catalonia, the concentration of loans originated to new residents,
and, for Hipocat 8, the high LTV features of the securitised
loan pool .
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.
HIGH WRITE-OFFS ASSOCIATE D WITH OUT-OF-COURT SETTLEMENTS
The rapid increase in loan write-offs is to a large extent attributed
to the acceleration of delinquent loans into write-off category,
most specifically when the servicer resorts to out-of-court
settlement. Caixa Catalunya has been actively avoiding formal,
repossession procedures for the non-Spanish nationals and unemployed
in favour of one-to-one solutions. Caixa Catalunya
resorted to "dacion en pago" or "compra-venta" to avoid
delaying inevitable possession and limit ultimate losses. "Dacion
en pago" is a voluntary agreement whereby the borrower hands over the
possession of the property to the lender to clear the outstanding mortgage
debt. "Compra-venta" is the sale of mortgage
properties to real estate companies. Out-of --court
settlement accounted to between 54% of total write-offs
in Hipocat 8 and 93% of total write-offs in Hipocat 17 as
at September 2010.
Recoveries achieved on out-of-court property repossessions
have been relatively high compared to recoveries achieved via legal repossessions
so-far. We understand that Caixa Catalunya has facilitated
the sale of the acquired properties gone through "dacion en pago" to real
estate companies (owned by the lender) or external investors via "compra-venta"
(a cash acquisition with property sale proceeds flowing back to the fondos).
Recoveries on the properties sold via "compra-venta" have reached
an average recovery rate of 91% in Hipocat 8 and 17 (calculated
as the total recoveries achieved via compra-venta divided by total
write-offs associated with out-of-court settlement).
Recoveries on legal repossessions in Hipocat 8 currently represent about
50% of total amount going through legal proceedings (calculated
as the recoveries achieved though legal repossessions divided by write-offs
amount associated with legal repossession).
TRANSACTION FEATURES
Hipocat 8 and Hipocat 17 closed in May 2005 and December 2008 respectively.
The transactions are backed by portfolios of first-ranking mortgage
loans originated by Caixa Catalunya, now part of Caixa d'Estalvis
de Catalunya, Manresa I Tarragona (A3/P-2) and secured on
residential properties located in Spain, for an overall balance
at closing of EUR 1.5 billion and EUR 1.1 billion,
respectively. The new entity, Caixa d'Estalvis de Catalunya,
Manresa I Tarragona, is operative since 1st July 2010. Moody's
was informed that the servicing of Caixa Catalunya's mortgage portfolio
will remain on Caixa Catalunya's servicing platform.
Hipocat 8 consists of the securitisatisation of the first drawdown of
Caixa Catalunya's flexible mortgage loan. The product, named
"Crédito Total" offers the possibility of withdrawing additional
funds up to the minimum of the original loan-to-value (LTV)
or 80% LTV and enjoying grace periods of interest and principal.
Hipocat 8 includes a large share of loans with LTV over 80% (based
on the maximum drawable amount under the flexible loans), currently
representing 30% of current pool balance. Hipocat 17 securitize
non-flexible mortgages. The weighted average current LTV
in Hipocat 17 is 58%, with no loan over 80% LTV.
The pool concentration in Catalonia represented 60% and 82%
of current pool balance in Hipocat 8 and Hipocat 17 respectively.
Currently, 10.5% of the portfolio balance in Hipocat
17 and 12% in Hipocat 8 corresponds to loans granted to non-Spanish
nationals. About 4% of securitized loans has been originated
via broker in Hipocat 17 compared to none in Hipocat 8.
For details on the deal structure, please refer to the "Hipocat
8" and "Hipocat 17"new issue reports. Both reports
are available on www.moodys.com.
Some features in the deals have changed since closing:
Hedging agreement: Hipocat 8 benefits from an interest rate swap
provided by CECA (Confederación Española de Cajas de Ahorros,
Aa3/P-1). Following its downgrade, Caixa Catalunya
has been replaced as swap counterparty by CECA, 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." JPMorgan Chase Bank (Aa1/P1) acts
as swap counterparty in Hipocat 17 since closing.
Treasury Bank Accounts: For both transactions, collections
are paid to Caixa d'Estalvis de Catalunya, Tarragona i Manresa (A3/P-2)
and then transferred every 24 to 48 hours to the treasury account.
Caixa Catalunya has been replaced as the treasury account bank by Banco
Santander S.A (Aa2/P-1) in Hipocat 8 and by Banco Español
de Crédito S.A. (Aa3/P1 ) in Hipocat 17.
Paying Agents: Caixa d'Estalvis de Catalunya, Tarragona i
Manresa (A3/P2) in Hipocat 8. Caixa Catalunya was downgraded on
15 June 2009 from A2/P-1 to A3/P-2. Given Caixa Catalunya
has been acting as paying agent in the transaction since closing,
it is contemplated in the transaction documents that the gestora will
need to find a P-1 rated replacement or guarantor upon the downgrade
below P-1 of the paying agent within 30 days. Moody's understands
that Caixa Catalunya has identified eligible counterparty to act as paying
agent but no remedial action has yet been taken in that respect.
Caixa Catalunya has been replaced as paying agent by Banco Español
de Crédito S.A. (Aa3/P-1) in Hipocat 17.
Reserve fund: The rapidly increasing levels of defaulted loans ultimately
resulted in draws to the reserve fund in Hipocat 8 to 82% of target.
The amortization of the mezzanine and junior notes in Hipocat 8 is likely
to remain sequential as a consequence of this breach of pro-rata
amortization trigger. The reserve fund in Hipocat 17 is curretnly
at target level.
The principal methodologies used in this rating 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. 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.
Please also refer to the "Spanish RMBS September 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.
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
LIST OF RATINGS ACTIONS
Issuer: Hipocat 17 Fondo de Titulizacion de Activos
....EUR1070.8M A Certificate,
Downgraded to A1 (sf); previously on Aug 11, 2010 Aaa (sf)
Placed Under Review for Possible Downgrade
....EUR4.4M B Certificate, Downgraded
to Baa2 (sf); previously on Aug 11, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR24.8M C Certificate, Downgraded
to B2 (sf); previously on Aug 11, 2010 Baa3 (sf) Placed Under
Review for Possible Downgrade
Issuer:
HIPOCAT 8 Fondo de Titulizacion de Activos
....EUR32.7M D Certificate, Downgraded
to Ba1 (sf); previously on Aug 11, 2010 Baa2 (sf) Placed Under
Review for Possible Downgrade
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
Carole Bernard
Vice President - Senior 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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Spanish RMBS notes issued by Hipocat 8 and Hipocat 17
