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Rating Action:

Moody's downgrades notes in PYMECAT 2 FTPYME, FTA, Spanish SME ABS

31 May 2011

EUR248.6 million of rated securities affected

Frankfurt am Main, May 31, 2011 -- Moody's Investors Service announced today that it has downgraded the notes issued by PYMECAT 2 FTPYME Fondo de Titulización de Activos, Spanish SME ABS. The ratings remain on review for downgrade pending the outcome of proposals by the transactions' sponsors to mitigate operational risk and to remedy the swap replacement trigger. A full list of the ratings affected by today's rating action can be found at the end of this press release.

RATINGS RATIONALE

Today's rating action concludes the review that Moody's initiated in November 2010 due to weaker-than-expected performance. Moody's analysis also took into account the credit quality of the underlying SME loan portfolio. Based on this analysis, the rating agency determined: (i) its cumulative default and recovery rate; and (ii) its volatility assumption. The analysis also took into account the transaction structure, as assessed under Moody's cash flow analysis. The expected cumulative default-rate and volatility assumptions are the two key parameters that the rating agency uses to calibrate its default distribution curve, which in turn is included in the cash flow model used to rate European ABS transactions.

-- PERFORMANCE

Cumulative 90-day delinquencies now stand at 12.5% of the original balance, which is already in excess of the original assumption of 11.5%, while the pool factor stands at 49%. Historically, this transaction has under-performed Moody's Spanish SME delinquency index ("Spanish SME March 2011 Indices", May 2011). As of March 2011, 90- to 360-day delinquencies represented 3.9% of the current pool balance, compared with an index average of 2.2%. As of April 2011, the reserve fund was partially depleted (66% of its target) and cumulative write-offs had reached 3.2% of the original pool balance. Ninety-day to 18-month delinquencies now stand at 5.4% of the current pool balance.

-- KEY REVISED ASSUMPTIONS: CUMULATIVE DEFAULT, VOLATILITY AND RECOVERY

Moody's has reassessed its lifetime default expectation for PYMECAT 2's collateral pool. This factored in the weak collateral performance to date and any likely further performance deterioration of the pool in the current down cycle. In doing so, the rating agency took into account the transaction's exposure to the real-estate market (32% of the current pool).

Moody's assumes a default probability for SME debtors operating in the real-estate sector to be equivalent to a rating in the single-B range. This takes into account the rating agency's outlook for the Spanish real-estate sector. Moody's also assumes the default probability of non-real-estate debtors to be in the low Ba/high B range and estimates the remaining weighted-average life of the portfolio to be 4.5 years. Consequently, these revised assumptions have translated into a rise in the cumulative mean default assumption for the current portfolio, equal to 22% of the current portfolio balance. This default assumption corresponds to an equivalent rating of B2 over the portfolio weighted average life. This implies a revised cumulative mean default for the entire transaction (since closing) equal to 21% of the original portfolio balance, compared with 11.5% at closing.

Given the pool's relative granularity (with an effective number of borrowers of 349), Moody's used a Monte Carlo simulation to derive the gross default distribution. As a result of the simulation, the coefficient of variation has decreased to 35%, compared to 45% at closing. The prepayment rate was reduced to 5.0% from a 7.5% assumption at closing.

Moody's decreased the average recovery-rate assumption to 50% (a stochastic recovery rate), compared with 60% assumed at closing. This revised assumption takes into consideration the fact that 71.4% of the portfolio benefits from a mortgage guarantee and factors in an analysis of the real-estate collateral's nature and value. In addition, in its analysis, Moody's assumes that approximately a third of the current amount of written-off loans would be recovered (EUR4.3 million out of 13 million of outstanding defaults as of April 2011).

-- OPERATIONAL AND COUNTERPARTY RISK

Following the downgrade of the transaction servicer, Catalunya Caixa, to Ba1/NP from A3/P-2 in March 2011, the transaction documents contemplate the appointment of a back-up servicer. Moody's has been informed by the transaction's management company (gestora) that they have engaged in discussions with a potential party to act as back-up servicer. As a result, Moody's maintains on review for downgrade the ratings of the class A1, A2(G) and B notes pending the outcome of the proposal related to the back-up servicing arrangement. Catalunya Caixa also acts as swap counterparty in the transaction. Following the downgrade of Catalunya Caixa to Ba1, the documentation contemplates a replacement of Catalunya Caixa as swap counterparty. Moody's will conclude its review upon remedy of the swap replacement trigger. Under the current swap agreement, the Fondo pays the interest received from the loans and receives the sum of the weighted-average coupon on the rated notes plus 50 basis points per annum (bppa), over a notional amount corresponding to the pool balance excluding loans that are 90 days in arrears.

-- TRANSACTION

PYMECAT 2 is a securitisation of loans granted to small and medium-size companies (SME) in Spain that closed in October 2008. In April 2011, the portfolio comprised 2,141 loans. Most of the loans were originated between 2005 and 2008. The portfolio benefits from a good geographic diversification, with a 33.8% exposure to the region of Valencia, a 23.9% exposure to the region of Madrid and a 15.1% exposure to the region of Andalucia.

RATINGS LIST

....EUR237.7M A1 Certificate, Downgraded to Aa1 (sf) and Remains On Review for Possible Downgrade; previously on Nov 10, 2010 Aaa (sf) Placed Under Review for Possible Downgrade

....EUR189.8M A2(G) Certificate, Downgraded to Aa1 (sf) and Remains On Review for Possible Downgrade; previously on Nov 10, 2010 Aaa (sf) Placed Under Review for Possible Downgrade

....EUR17.5M B Certificate, Downgraded to Aa3 (sf) and Remains On Review for Possible Downgrade; previously on Nov 10, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

....EUR20M C Certificate, Downgraded to Baa2 (sf) and Remains On Review for Possible Downgrade; previously on Nov 10, 2010 A3 (sf) Placed Under Review for Possible Downgrade

....EUR35M D Certificate, Downgraded to B3 (sf) and Remains On Review for Possible Downgrade; previously on Nov 10, 2010 Baa3 (sf) Placed Under Review for Possible Downgrade

PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The principal methodology used in this rating was Moody's Approach to Rating CDOs of SMEs in Europe published in February 2007. The other methodologies used were 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.

Moody's used its excel based cash flow model, Moody's ABSROM™, as part of its quantitative analysis of the transaction. Moody's ABSROM™ model enables users to model various features of a standard European ABS transaction including: (i) the specifics of the default distribution of the assets, their portfolio amortisation profile, yield or recoveries; and (ii) the specific priority of payments, triggers, swaps and reserve funds on the liability side of the ABS structure. Moody's ABSROM™ User Guide is available on Moody's website and covers the model's functionality as well as providing a comprehensive index of the user inputs and outputs. MOODY'S CDOROMv2.8™ was used to estimate the default distribution.

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 month.

REGULATORY DISCLOSURES

The rating has been disclosed to the rated entity or its designated agent and issued with amendment resulting from that disclosure.

Information sources used to prepare the credit rating are the following: parties 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.

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.

Frankfurt am Main
Ludovic Thebault
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades notes in PYMECAT 2 FTPYME, FTA, Spanish SME ABS
No Related Data.
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