Madrid, March 27, 2013 -- Moody's Investors Service has today downgraded the ratings of two junior
and two senior notes in two Spanish residential mortgage-backed
securities (RMBS) transactions: BBVA RMBS 5, FTA and BBVA
RMBS 11, FTA. At the same time, Moody's confirmed
the ratings of three securities in BBVA RMBS 9, FTA and BBVA RMBS
10, FTA. Insufficiency of credit enhancement to address sovereign
risk has prompted today's action.
Today's rating action concludes the review of five notes placed
on review on 2 July 2012, following Moody's downgrade of Spanish
government bond ratings to Baa3 from A3 on 13 June 2012 http://www.moodys.com/research/Moodys-downgrades-to-A3sf-notes-in-328-Spanish-ABS-RMBS--PR_249914
.
For a detailed list of affected ratings, see towards the end of
the press release, before regulatory disclosures section.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
to address sovereign risk. Moody's confirmed the ratings
of securities whose credit enhancement and structural features provided
enough protection against sovereign and counterparty risk.
The determination of the applicable credit enhancement driving today's
rating actions reflects the introduction of additional factors in Moody's
analysis to better measure the impact of sovereign risk on structured
finance transactions (see "Structured Finance Transactions:
Assessing the Impact of Sovereign Risk", 11 March 2013).
This report is available on www.moodys.com and can be accessed
via the following link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319988
.
-- Additional Factors Better Reflect Increased Sovereign
Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the local currency country risk
ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's
intends to better reflect increased sovereign risk in its quantitative
analysis, in particular for mezzanine and junior tranches.
The Spanish country ceiling, and therefore the maximum rating that
Moody's will assign to a domestic Spanish issuer including structured
finance transactions backed by Spanish receivables, is A3.
Moody's Individual Loan Analysis Credit Enhancement (MILAN CE) represents
the required credit enhancement under the senior tranche for it to achieve
the country ceiling. By lowering the maximum achievable rating
for a given MILAN, the revised methodology alters the loss distribution
curve and implies an increased probability of high loss scenarios.
In all four affected transactions, Moody's maintained the
current expected loss and MILAN CE assumptions. Expected loss assumptions
as a percentage of original pool balance remain at 6.75%
for BBVA RMBS 5, 4.50% for BBVA RMBS 9 and 10 and
7% for BBVA RMBS 11. The MILAN CE assumptions remain at
20% for BBVA RMBS 5, 9 and 10 and 22.5% for
BBVA RMBS 11.
-- Exposure to Counterparty Risk
The conclusion of Moody's rating review also takes into consideration
the exposure to Banco Bilbao Vizcaya Argentaria, S.A.
("BBVA", Baa3/P-3), which still acts as
Issuer Account Bank in all four transactions and swap counterparty for
BBVA RMBS 5, 9 and 10. Moody's notes that, following
the breach of the second rating trigger, the swaps in BBVA RMBS
5, 9 and 10 do not reflect Moody's de-linkage criteria.
The rating agency has assessed for each deal the probability of a default
of the swap counterparty on the ability of the issuer to meet its obligations
under the transaction. Additionally, Moody's has examined
the effect of the loss of any benefit from the swap and any obligation
the issuer may have to make a termination payment. In conclusion,
these factors will not negatively affect the rating on the notes.
Moody's has also assessed exposure to Issuer Account Bank taking
into consideration the probability of default of the Issuer Account Bank
and examining the effect of the loss of reserve fund and collections deposited
in the Issuer Account Bank. In conclusion, these factors
will not negatively affect the rating of the notes. The ratings
of the notes could be negatively affected in case of deterioration of
BBVA credit profile. This linkage is more relevant in the case
of BBVA 9 where the reserve fund is the main source of credit enhancement.
-- Other Developments May Negatively Affect the Notes
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
As the euro area crisis continues, the ratings of structured finance
notes remain exposed to the uncertainties of credit conditions in the
general economy. The deteriorating creditworthiness of euro area
sovereigns as well as the weakening credit profile of the global banking
sector could further negatively affect the ratings of the notes.
Moody's describes additional factors that may affect the ratings
in "Approach to Assessing Linkage to Swap Counterparties in Structured
Finance Cashflow Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772),
published on 2 July 2012.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework", published in March
2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Other factors used in these ratings are described in "The Temporary Use
of Cash in Structured Finance Transactions: Eligible Investment
and Bank Guidelines" (http://www.moodys.com/research/The-Temporary-Use-of-Cash-in-Structured-Finance-Transactions-Eligible--PBS_SF316982,
published in March 2013.
In reviewing these transactions, Moody's used its cash flow model,
ABSROM, to determine the loss for each tranche. The cash
flow model evaluates all default scenarios that are then weighted considering
the probabilities of the lognormal distribution assumed for the portfolio
default rate. In each default scenario, Moody's calculates
the corresponding loss for each class of notes given the incoming cash
flows from the assets and the outgoing payments to third parties and note
holders. Therefore, the expected loss for each tranche is
the sum product of (1) the probability of occurrence of each default scenario
and (2) the loss derived from the cash flow model in each default scenario
for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
In the context of the rating review, the transactions have been remodeled and some inputs have been adjusted to reflect the new approach described above. In addition the following have been corrected during the review: for BBVA RMBS 5 the triggers to stop pro rata amortization in pro rata scenario and the triggers for reserve fund to build up; for BBVA RMBS 9 the reserve fund amortization trigger and for BBVA RMBS 11, the input for the cumulative default value to trigger interest deferral on mezzanine and junior notes.
LIST OF AFFECTED RATINGS
Issuer: BBVA RMBS 5, FTA
....EUR4675M A Notes, Downgraded to
Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
Issuer: BBVA RMBS 9, FTA
....EUR1295M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
Issuer: BBVA RMBS 10, FTA
....EUR1376M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Remained
On Review for Possible Downgrade
....EUR224M B Notes, Confirmed at B1
(sf); previously on Jul 2, 2012 B1 (sf) Placed Under Review
for Possible Downgrade
Issuer: BBVA RMBS 11, FTA
....EUR1204M A Notes, Downgraded to
Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR119M B Notes, Downgraded to Ba2
(sf); previously on Jun 12, 2012 Definitive Rating Assigned
Ba1 (sf)
....EUR77M C Notes, Downgraded to B3
(sf); previously on Jun 12, 2012 Definitive Rating Assigned
B1 (sf)
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of these transactions
in the past six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Maria Turbica Manrique
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Barbara Rismondo
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades four notes in four BBVA Spanish RMBS transactions
