Madrid, April 10, 2013 -- Moody's Investors Service has today downgraded the ratings of six junior
and one senior notes in three Spanish residential mortgage-backed
securities (RMBS) transactions: Hipocat 16, FTA, Hipocat
17, FTA and Hipocat 18, FTA. Moody's also confirmed
the rating of the senior notes in Hipocat 18, FTA. Insufficiency
of credit enhancement to address sovereign risk, deterioration in
collateral performance and exposure to issuer account bank have prompted
today's downgrades.
Today's rating action concludes the review of seven notes placed
on review on 2 July 2012, following Moody's downgrade of Spanish
government bond ratings to Baa3 from A3 on June 2012. This rating
action also concludes the review of one note placed on review on 23 November
2012, following Moody's revision of key collateral assumptions for
the entire Spanish RMBS market (http://www.moodys.com/research/Moodys-review-of-Spanish-RMBS-sector-triggers-rating-actions-on--PR_260528).
See towards the end of the ratings rationale section of this press release
for a detailed list of affected ratings.
RATINGS RATIONALE
Today's downgrades reflect primarily the insufficiency of credit enhancement
to address sovereign risk. Furthermore, Moody's revised
some of its collateral assumptions for Hipocat 17 and 18, FTA due
to recent deterioration in collateral performance. The rating action
on Hipocat 16, FTA also reflects the exposure of the transaction
to Banco de Espa?a acting as issuer account bank. Moody's
confirmed the ratings of one note note in Hipocat 18, FTA in consideration
of the available credit enhancement that provides enough protection against
sovereign and counterparty risk
The determination of the applicable credit enhancement that drives 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.
-- Revision of Key Collateral Assumptions
During its review Moody's increased its expected loss (EL) assumption
in Hipocat 17, FTA to 4.00% from 2.60%
due to worse-than-expected collateral performance.
The deterioration in performance is reflected by the rise of loans more
than 90 days in arrears as of current portfolio balance to 2.96%
as of December 2012 from 0.77% as of March 2012.
In the same period cumulative defaults (defined as loans more than 18
months in arrears) surged to 2.36% from 2.00%
of original portfolio balance. As a consequence the reserve fund
has been used in the last payment date in December 2012 and currently
stands at 97% of its target amount.
Moody's has not revised the expected loss assumptions in Hipocat
16 and Hipocat 18, FTA and maintained the values at 2.10%
and 2.00% respectively.
Moody's reassessed the current loan-by-loan information
of the three transactions' underlying portfolios to determine the
MILAN CE. Moody's increased its MILAN CE assumption in Hipocat
18, FTA to 16.00% from 15.00% as a consequence
of the high concentration of loans exceeding a 80% loan-to-value
(LTV) ratio and the exposure to flexible mortgage product in the portfolio.
Moody's has not revised the MILAN CE assumption in Hipocat 16 and
17, FTA and maintained the values at 15.00% and 12.50%
respectively.
-- Exposure to Counterparty
Moody's rating analysis took into consideration the exposure of
the senior notes in Hipocat 16, FTA to Banco de Espa?a and
in Hipocat 17 and 18, FTA to Banco Espanol de Credito (Banesto Baa3/P-3/under
review for upgrade) acting as issuer account banks. Moody's
has assessed the probability and effect of a default of the two entities
on the issuers ability to meet its obligations under the transaction.
Moody's concluded that the issuer account bank exposure had a negative
impact only on the senior notes rating in Hipocat 16, FTA and had
no negative impact in Hipocat 17 and 18, FTA.
Moody's also analysed potential payment disruption in Hipocat 16,
FTA given the exposure to Banco Bilbao Vizcaya Argentaria, S.A.
(BBVA Baa3/P-3) acting as swap counterparty. Moody's concluded
that this risk did not have a negative impact on the outstanding ratings.
-- 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 increase 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 "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", published in March 2013.
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.
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, for Hipocat 17 and 18,
FTA the input for the principal to pay interest on junior notes has been
corrected during the review.
LIST OF AFFECTED RATINGS
Issuer: HIPOCAT 16 FONDO DE TITULIZACION DE ACTIVOS
....EUR956.5M A Notes, Downgraded
to Baa3 (sf); previously on Nov 23, 2012 Downgraded to Baa1
(sf) and Remained On Review for Possible Downgrade
....EUR25M B Notes, Downgraded to B2
(sf); previously on Jul 2, 2012 Baa1 (sf) Placed Under Review
for Possible Downgrade
....EUR18.5M C Notes, Downgraded
to Caa2 (sf); previously on Jul 2, 2012 Ba3 (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOCAT 17, FTA
....EUR4.4M B Notes, Downgraded
to Ba3 (sf); previously on Jul 2, 2012 Baa2 (sf) Placed Under
Review for Possible Downgrade
....EUR24.8M C Notes, Downgraded
to Caa3 (sf); previously on Jul 2, 2012 B3 (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOCAT 18, FTA
....EUR737.7M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR30.3M B Notes, Downgraded
to Baa3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR32M C Notes, Downgraded to Ba2
(sf); previously on Jul 2, 2012 Baa3 (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.
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
Sebastian Hoepfner
Analyst
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 ratings on 7 Spanish RMBS tranches
