Approximately EUR447 million of debt securities affected
Paris, March 23, 2010 -- Moody's Investors Service has today downgraded to Ba3 from Baa2
the rating of the outstanding Series D notes issued by FTPYME Santander
1, FTA (Santander 1). At the same time, Moody's
has upgraded the rating of the Class B2 notes to Aa1 from Aa2 and the
rating of the Class C notes to Aa3 from A2. The Aaa ratings of
the Class B1(G) notes, which benefit from the guarantee of the Aaa-rated
government of Spain, are unchanged. Today's rating
actions conclude Moody's rating review of the Class D notes,
which was initiated on 23 March 2009. A detailed list of the rating
actions can be found at the end of this press release.
Today's rating downgrade resulted from Moody's update of its
ABS SME approach, as described in the Rating Methodology report
"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", published on 17 March 2009,
which had prompted the Class D notes rating review. Under the updated
methodology, Moody's has increased its cumulative default
expectation for the outstanding portfolio (as described in detail below).
The rating upgrades resulted from the significant build-up of credit
enhancement under the Class B2 and Class C notes due to the amortisation
of the very seasoned portfolio. This additional credit enhancement,
combined with some of Moody's revised rating assumptions (as described
in detail below), outweighed the effect of Moody's increased
default probability expectation.
As part of its review, Moody's considered the potential for further
performance deterioration in the current economic cycle, and the
exposure of the transaction to the real estate sector. The deterioration
of the Spanish economy has been reflected in Moody's negative sector outlook
for Spanish SME securitisation transactions ("EMEA ABS & RMBS:
2009 Review and 2010 Outlook", published in January 2010).
During its review, Moody's was unable to obtain detailed and
complete information on some of the characteristics of the outstanding
pool of loans, particularly at the loan level, as with some
of the other Santander SME ABS transactions reviews. Therefore,
in some instances, Moody's made assumptions relying on aggregate
information or stressed its expected assumptions, as detailed below.
Collateral performance
Outstanding 90+ delinquencies (i.e. the balance of
loans with arrears for more than 90 days) had reached 0.48%
of the portfolio current balance, as of the February 2010 investor
report. While this is down from the peak of 0.65%
reported in May 2009, the outstanding balance of defaulted loans
as a percentage of the portfolio current balance has increased continuously
to over 0.41% from 0.25% in the same period.
Moody's also notes that the cumulative balance of defaulted loans
is not reported for this transaction, which is unusual.
The transaction has been amortising since the end of the revolving period
in November 2005 and the most senior, Class A notes were fully redeemed
at the end of 2008. In February 2010, the pool factor was
30%.
Default Probability Adjustments
Moody's first revised its assumption for the default probability
(DP) of the SME debtors to an equivalent rating in the single B-range
for debtors operating in the real estate sector, and in the low
Ba-range for non-real estate debtors. Nearly 20%
of the outstanding pool balance related to borrowers in the "building
and real estate sector" according to Moody's industry classification,
based on March 2010 loan-level data. However, Moody's
was unable to verify the sector of activity for roughly 3% of the
outstanding pool balance and assumed that a proportion of these loans
related to activities in the building and real estate sector.
In addition, Moody's made DP adjustments to reflect the size
of the debtors' companies. In the absence of any data on
the underlying obligors' business size, Moody's assumed
that approximately 40% of the loans were to micro-size SMEs
and therefore notched down its rating proxy to reflect additional default
risk associated with these debtors.
Finally, Moody's equivalent rating for loans in arrears for
more than 30 days was notched down depending on the length of time the
loans had been in arrears, and notched up for performing loans not
in the building and real estate sector and originated prior to 2006.
As the portfolio revolving period ended in November 2005, all the
loans in the pool were originated prior to 2006.
Revised WAL and DP Assumptions
Moody's separately revised its weighted-average remaining
life assumption for the pool of loans to 3.5 years. With
a 3.5-year average life, the low-Ba overall
DP equivalent rating resulting from the above DP adjustments translates
into an increased cumulative mean default assumption of 7.3%
of the current outstanding portfolio amount. Moody's DP assumption
relates to the typical 90-day past due default definition,
which is different from the actual default definition in this transaction
(12-month past due). Moody's recovery assumption is
consistent with the default definition reflected in its DP assumption.
In its review, Moody's also considered the sensitivity of
ratings to a DP in the 7%-8% range.
Expressed as a percentage of the original portfolio balance, Moody's
revised cumulative mean default rate would be 2.4%,
if using twice the current balance of loans with outstanding defaults
based on the transaction write-off definition ( 0.25%
of the original portfolio balance) as a proxy for the unreported cumulative
balance of 90 day past-due loans. This compares to Moody's
initial mean cumulative DP assumption at closing of 1% for the
initial pool and 3.5% for each subsequent replenishment.
Moody's closing assumption would translate in a cumulative mean
default rate of 2.3% of the transaction's original
balance plus replenishments (taking into account cumulative replenishments
of 60% of the transaction original balance between 2003 and 2005).
Recovery and Prepayment Assumptions
Moody's increased its initial mean recovery expectation to 45%
from 35% to reflect the increased proportion of properties backed
by mortgage guarantees (approximately 98% of the outstanding balance
against 84% at closing) and the decrease in loan-to-value
(LTV) ratios reported for these guarantees. However, Moody's
mean recovery rate expectation also reflects the lack of any recovery
data or any data on the type of properties serving as collateral for these
mortgage securities. In addition, Moody's has considered
the sensitivity of ratings to recovery assumptions in a 40%-50%
range. Stochastic recoveries were modelled assuming a 20%
standard deviation.
The constant prepayment rate (CPR) assumption used in Moody's cash
flow model has decreased to 5% from 15% at closing.
This rate is consistent with the most recently reported prepayment rate
data and Moody's expectation for the remainder of the transaction.
Default distribution volatility
Given the remaining granularity of the outstanding portfolio -
with more than 11,000 loans still outstanding in February 2010 -
Moody's used a normal inverse distribution to derive the probabilities
of its default scenarios in its cash flow model, ABSROM.
In light of the increase in its cumulative mean default assumption,
Moody's has reduced its original coefficient of variation (COV or
standard deviation over mean DP) assumption to 48% from 70%,
maintaining the implied asset correlation assumed for the initial portfolio
at closing. However, Moody's has also considered the
sensitivity of ratings to COV assumptions in the 50%-55%
range.
The transaction
Santander 1 is a securitisation fund which purchased a pool of loans granted
by Banco Santander, S.A. to Spanish SMEs. At
closing, in September 2003, the portfolio consisted of over
20,000 loans. The loans were originated between 1990 and
2003, with a weighted-average seasoning of 3 years and a
weighted-average remaining term of 10.5 years. Geographically,
the pool was well diversified with the highest concentrations in Madrid
(22%), Andalucia (14%) and Catalonia (13%)
at closing. The pool had a revolving period of two years after
closing. Criteria for loans added during the revolving period limited
the build-up of regional and borrower concentrations. No
loan with deferred payment of interest or principal was eligible for inclusion
in the pool.
Meaning of rating and methodologies
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transaction. Other risks have not been
addressed, but may have a significant effect on yield to investors.
Moody's monitored these transactions using the principal 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", published in March 2009 and "Moody's
Approach to Rating Granular SME Transactions in Europe, Middle East
and Africa" published in June 2007. These reports are available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. 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. 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.
To obtain a copy of Moody's New Issue Report or periodic Performance Overviews,
please visit Moody's website at www.moodys.com or contact
our Client Service Desk in London (+44-20-7772 5454)
Detailed Rating Actions
Class B2: upgraded to Aa1 from Aa2; previously on 29 September
2003 assigned definitive ratings of Aa2
Class C: upgraded to Aa3 from A2; previously on 29 September
2003 assigned definitive ratings of A2
Class D: downgraded to Ba3 from Baa1; previously on 23 March
2009 placed under review for possible downgrade
Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Ariel Weil
Vice President - Senior Analyst
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades most junior, upgrades senior notes in FTPYME Santander 1, Spanish SME ABS
