Approximately EUR 1 billion of rated debt securities affected
London, 15 December 2010 -- Moody's Investors Service announced today that it downgraded the ratings
of the class A3, A4 and B notes issued by Hipocat 10 and all notes
issued in Hipocat 9. Moody's confirmed the ratings of the class
A2 notes issued by Hipocat 10. A detailed list of the rating actions
is provided at the end of this press release.
The ratings of all notes in Hipocat 9 were placed on review for possible
downgrade in November 2009 given the deterioration in the performance
of pool collateral and economic environment in Spain. Class A2
and B in Hipocat 10 were placed on review for possible downgrade in August
2010 following errors with respect to defaults reporting.
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 had been understated in the investor reports of the Hipocat series.
(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 from Gestion de Activos Titulizados
("GaT") final restated amounts of written-off 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 9 and
10 taking into account the collateral performance to date as well as the
current macroeconomic environment in Spain.
Moody's had already taken action on the Hipocat 10 in April 2009 and December
2009. But collateral performance has deteriorated further and Hipocat
10 is currently performing outside of Moody's expectations as of the last
rating review. Hipocat 9 is performing worse than Moody's expectations
as of closing.
Cumulative write-offs rose to 4.04% and 8.48%
of original pool balance in Hipocat 9 and 10 respectively, up from
2.9% and 5.9% respectively a year earlier.
The share of 90d+ arrears almost halved in the 12 months to October
2010, currently standing at 1.33% of current pool
balance in Hipocat 9 and 2.64% in Hipocat 10. The
rapidly increasing levels of defaulted loans ultimately resulted in draws
to reserve fund in both transactions and build-up in unpaid Principal
Deficiencies Ledger (PDL) in Hipocat 10 as of the last payment date.
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 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 2.9% of
original pool balance in Hipocat 9 and 6.2% in Hipocat 10,
up from 0.96% and 4% respectively.
MILAN Aaa CE:
Moody's has assessed the loan-by-loan information for Hipocat
9 and Hipocat 10 to determine the MILAN Aaa CE.
Moody's has increased its MILAN Aaa CE assumptions for Hipocat 9 to 17%,
up from 7.65% at closing. Milan Aaa CE for Hipocat
10 was increased to 20%, up from 17% as at last rating
review. The increase in the MILAN Aaa CE reflects the high LTV
features of the securitised loan pool, high geographical concentration
in Catalonia and the relatively high concentration of loans originated
to new residents.
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 ASSOCIATED TO 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 60% and 70% of total write-offs in the
Hipocat 9 and 10 pools 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 85% in Hipocat 10 and 92% in
Hipocat 9 (calculated as the total recoveries achieved via compra-venta
divided by total write-offs associated with out-of-court
settlement). Recoveries on legal repossessions currently represent
between 45% and 55% of total amount going through legal
proceedings (calculated as the recoveries achieved though legal repossessions
divided by write-offs amount associated with legal repossession).
TRANSACTIONS FEATURES
Hipocat 9 and Hipocat 10 closed in November 2005 and July 2006 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 1.0 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
Both deals consist 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)
and 80% LTV. All loans can enjoy payment holidays of interest
and principal. The pool concentration in Catalonia represented
about 70% of both pool balances at closing. Currently,
23% of the portfolio balance in Hipocat 10 and 14% in Hipocat
9 corresponds to loans granted to non-Spanish nationals.
Only a limited share of the securitized loans has been originated via
broker, representing less than a 2% in both pools.
For details on the deal structure, please refer to the "Hipocat
9" and "Hipocat 10"new issue reports. Both reports
are available on www.moodys.com.
Some features in the deals have changed since closing:
Hedging agreement: The transactions benefit from interest rate swaps
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."
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 accounts.
The treasury accounts are held at Caja de Ahorros y Pensiones de Barcelona
(Aa2/P-1).
Paying Agent: Caixa d'Estalvis de Catalunya, Tarragona i Manresa
(A3/P2). 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.
Reserve fund and Principal deficiency ledger : The rapidly increasing
levels of defaulted loans ultimately resulted in draws to the reserve
funds. The reserve fund is currently fully depleted in Hipocat
10 and is at 50% of target in Hipocat 9. The amortization
of the mezzanine and junior notes is likely to remain sequential as a
consequence of this breach of pro-rata amortization triggers.
Hipocat 10 has recorded EUR5.5m of unpaid PDL as at the last IPD.
Amortisation of the senior notes to remain sequential in Hipocat 10:
Class A4 has a planned amortisation and, on any IPD, EUR 12.5
million are deposited and retained in a dedicated account for the repayment
of this class which will be amortised with a bullet payment at the legal
maturity on April 2012. A liquidity facility, provided by
Calyon Spanish branch, is in place to ensure payment of this series
at its maturity date. A total of EUR125 million are currently retained
in the Withholding Principal Account held at Caja de Ahorros y Pensiones
de Barcelona (Aa2/P-1). All remaining available funds in
excess to the amount retained to pay class A4 notes are applied to repay
class A2 and A3 notes. These two classes do not follow a pro-rata
amortisation, instead 50% of the available funds are used
to amortise A3 and 50% to amortise A2 (the outstanding A2 and A3
notes balances were respectively EUR367m and EUR246.5m as at October
2010). Class A notes in Hipocat 10 is to switch to pro rata subject
to a performance trigger - to be hit if the outstanding balance
of loans more than 90 days and less than 18 months in arrears exceeds
25% of the initial pool balance. Moody's considers this
trigger very unlikely to be breached, as the outstanding balance
of loans more than 90 days is currently 1.37% of initial
pool balance. Moody's expects that Class A4 and A3 will be redeemed
before Class A2 which is reflected in the different rating for Class A3/A4
and Class A2.
INSUFFICIENT LIQUIDITY / BREACH OF INTEREST DEFFERRAL TRIGGER IN HIPOCAT
10
The reserve fund in Hipocat 10 is fully depleted and that no other sources
of liquidity are available in the deal. 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
in case of a servicing transfer. Moody's considers that the risk
of a missed payment of interest on the class A3 and A4 of Hipocat 10 is
not commensurate with a Aaa-rating. Moody's has therefore
downgraded the rating for these classes of notes.
Class C interests in Hipocat 10 were deferred on the interest payment
date falling on 26th July 2010, when cumulative write-offs
exceeded interest deferral trigger level of 7% of original pool
balance. Under the revised expected loss assumption for Hipocat
10, the downgrade of class B in Hipocat 10 considers the very high
probability that interest will be deferred also for this class of notes.
IDT level for the class B is set at 11% of original pool balnce.
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 purposes 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 RATING ACTIONS
Issuer: HIPOCAT 10 FONDO DE TITULIZACIÓN DE ACTIVOS
....EUR733M A2 Notes, Confirmed at Aa2
(sf); previously on Aug 11, 2010 Aa2 (sf) Placed Under Review
for Possible Downgrade
....EUR300M A3 Notes, Downgraded to
Aa1 (sf); previously on Jun 5, 2009 Aaa (sf) Placed Under Review
for Possible Downgrade
....EUR200M A4 Notes, Downgraded to
Aa1 (sf); previously on Jun 5, 2009 Aaa (sf) Placed Under Review
for Possible Downgrade
....EUR54.8M B Notes, Downgraded
to B1 (sf); previously on Aug 11, 2010 Ba1 (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOCAT 9 FONDO DE TITULIZACIÓN DE ACTIVOS
....EUR500M A2a Certificate, Downgraded
to Aa1 (sf); previously on Nov 30, 2009 Aaa (sf) Placed Under
Review for Possible Downgrade
....EUR236.2M A2b Certificate,
Downgraded to Aa1 (sf); previously on Nov 30, 2009 Aaa (sf)
Placed Under Review for Possible Downgrade
....EUR22M B Certificate, Downgraded
to Aa3 (sf); previously on Nov 30, 2009 Aa2 (sf) Placed Under
Review for Possible Downgrade
....EUR18.3M C Certificate, Downgraded
to A3 (sf); previously on Nov 30, 2009 A2 (sf) Placed Under
Review for Possible Downgrade
....EUR23.5M D Certificate, Downgraded
to B1 (sf); previously on Nov 30, 2009 Baa3 (sf) Placed Under
Review for Possible Downgrade
....EUR16M E Certificate, Downgraded
to C (sf); previously on Nov 30, 2009 Caa3 (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
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Spanish RMBS notes issued by Hipocat 9 and Hipocat 10
