London, 18 March 2013 -- Moody's Investors Service has today downgraded the ratings of two mezzanine
and one junior notes in MBS Bancaja 6. At the same time,
Moody's confirmed the ratings of senior notes in MBS Bancaja 6 and
junior notes in MBS Bancaja 7 and 8.
Insufficiency of credit enhancement to address sovereign risk and revision
of key collateral assumptions have prompted today's downgrade.
For a detailed list of affected ratings, see towards the end of
the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
to address sovereign risk and revision of key collateral assumptions.
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/viewresearchdoc.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.
As a result, Moody's downgraded mezzanine Class B in MBS Bancaja
6 to Baa3 despite credit enhancement above MILAN CE. This is due
to higher probability of scenarios where losses are greater than MILAN
CE and due to the small size of this class.
-- Revision of Key Collateral Assumptions
Moody's has revised its lifetime loss expectation (EL) assumption in MBS
Bancaja 6 because of worse-than-expected collateral performance
since the last review of the Spanish RMBS sector in November 2012.
Moody's has also reassessed the MILAN CE in all three affected transactions.
Downgrade of Classes C and D in MBS Bancaja 6 reflects the revision of
the key collateral assumptions in addition to the impact of the sovereign
risk.
Expected Loss:
In light of the rapid increase in defaults, Moody's increased
the portfolio EL assumption in MBS Bancaja 6. Moody's has reassessed
its lifetime loss expectation taking into account the collateral performance
to date as well as the current macroeconomic environment in Spain.
Moody's had already revised EL assumptions on MBS Bancaja 6 in November
2012. Collateral performance has deteriorated further and MBS Bancaja
6 is currently performing outside of Moody's expectations as of the last
rating review. Cumulative write-offs rose to 1.28%
of original pool balance in MBS Bancaja 6, up from 0.71%
a year earlier. The share of 90d+ arrears currently stands
at 5.03% of current pool balance. Moody's have
updated the EL assumption to 4.5% of original pool balance,
up from 3.9%.
MILAN CE:
Moody's has increased the MILAN CE in MBS Bancaja 6, 7 &
8 to 15.3%, 43% and 38.6% respectively.
Moody's has assessed the loan-by-loan information to determine
MILAN CE. Moody's updated the MILAN CE in MBS Bancaja 6 due
to the revision of the portfolio expected loss which resulted in higher
Minimum Expected Loss Multiple EL, one of the two floors defined
in Moody's updated methodology for rating EMEA RMBS transactions.
Moody's increased the MILAN CE in MBS Banaja 7 & 8 to account
for increased risks associated with increased share of loans in negative
equity.
-- Exposure to Counterparty Risk
The conclusion of Moody's rating review also takes into consideration
the exposure to Banco Santander (Baa2/P-2), which acts as
a treasury account bank in all three affected transactions.
In October 2012 the Management Company has amended Treasury Account Agreements
to lower the replacement triggers from loss of P-1 to loss of Baa3.
Moody's has assessed the probability and effect of a default of
the treasury account bank on the ability of the issuer to meet its obligations
under the transaction, including the impact of the loss of any benefit
from the reserve fund, commingling reserve and accumulated collections.
In conclusion, these factors will not negatively affect the ratings
of the notes.
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.
Additional factors that may affect the ratings are described in "The Temporary
Use of Cash in Structured Finance Transactions: Eligible Investment
and Bank Guidelines: Request for Comment" (http://www.moodys.com/research/The-Temporary-Use-of-Cash-in-Structured-Finance-Transactions-Eligible--PBS_SF289341
) and "Approach to Assessing Linkage to Swap Counterparties in Structured
Finance Cashflow Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772),
both published on 2 July 2012.
PRINCIPAL METHODOLOGIES
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.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and 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, the corresponding
loss for each class of notes is calculated given the incoming cash flows
from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum product
of (i) the probability of occurrence of each default scenario; and
(ii) 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.
The revised approach to incorporating country risk changes into structured
finance ratings forms part of the relevant asset class methodologies,
which Moody's updated and republished on 11 March 2013, along
with the publication of its Special Comment " Structured Finance Transactions:
Assessing the Impact of Sovereign Risk", which is available on www.moodys.com
and can be accessed via the following link: (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF319988).
LIST OF AFFECTED RATINGS
Issuer: MBS BANCAJA 6 FONDO DE TITULIZACI?N DE ACTIVOS
....EUR37.5M B Notes, Downgraded
to Baa3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR28.5M C Notes, Downgraded
to Ba2 (sf); previously on Jul 2, 2012 Baa1 (sf) Placed Under
Review for Possible Downgrade
....EUR30M D Notes, Downgraded to B2
(sf); previously on Jul 2, 2012 B1 (sf) Placed Under Review
for Possible Downgrade
....EUR904M A Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed
Under Review for Possible Downgrade
Issuer: MBS BANCAJA 7, FTA
....EUR402.5M B Notes, Confirmed
at Caa2 (sf); previously on Jul 2, 2012 Caa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: MBS Bancaja 8, FTA
....EUR175.5M B Notes, Confirmed
at Caa2 (sf); previously on Jul 2, 2012 Caa2 (sf) Placed Under
Review for Possible Downgrade
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.
Carole Bernard
Vice President - Senior Analyst
Structured Finance Group
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
Christophe?de Noaillat
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Lyudmila Udot
Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 mezzanine and junior notes in MBS Bancaja 6 and confirms notes in MBS Bancaja 7 & 8
