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08 Oct 2010
Paris, October 08, 2010 -- Moody's today downgraded the ratings of three Spanish ABS SME senior
notes guaranteed by the region of Catalunya (Generalitat de Catalunya,
rated A1). The rating action follows the high dependency between
Catalunya and Spanish SMEs concentrated in Catalunya that Moody's
assumed to determine the benefits of the guarantee to the senior ABS SME
notes. The rating of the A2(G) class in the GAT FTGENCAT 2007,
FTA transaction remains on review for possible downgrade due to a continued
exposure to increased swap counterparty risk (see press release of July
2009). A complete list of rating actions by issuer is provided
at the end of this press release.
In a related rating action today (see separate press release), Moody's
also downgraded the ratings of Spanish ABS SME senior notes guaranteed
by the Spanish government (Aa1).
Moody's approach to rating the guaranteed notes is based on a joint default
analysis (JDA), combining (i) the intrinsic credit risk of the senior
notes backed by loans to Spanish Small and Medium Size Enterprises (SME)s
irrespective of the guarantee (ii) the credit risk of the guarantor (A1)
and (iii) the assumption of a high dependency between the guarantor and
the SMEs. Examples of the JDA approach have been provided in Moody's
rating methodology "The Application of Joint Default Analysis to Regional
and Local Governments", published December 2008.
Moody's assumed a high asset correlation between the Spanish SMEs
and the region of Catalunya to assess their joint default probability.
As a result, the affected senior Spanish ABS SME notes have been
downgraded to the higher of the guarantor's rating and a rating
consistent with their intrinsic credit quality irrespective of the guarantee.
During its review, Moody's tested a 20 to 50% assumption
range for the asset correlation between a default of the average SME obligor
in the portfolio backing the ABS transactions and that of the region of
Catalunya. This range of asset correlations was determined based
on the default history in emerging markets countries that were affected
by a sovereign crisis (see "Emerging Market Corporate and Sub-Sovereign
Defaults and Sovereign Crises: Perspective on Country Risk" published
by Moody's in February 2009).
Moody's used simple calculations to test the dependency between
a default on a senior ABS SME note and that on its Spanish guarantor.
The calculations assumed (i) a perfectly granular portfolio of SME obligors,
each with the average default probability of the entire portfolio and
(ii) a credit enhancement below the note that was consistent with its
intrinsic credit risk. In these calculations, the expected
loss for a guaranteed note is the product of the default probability of
the region of Catalunya (A1) and the loss on the senior ABS tranche conditional
on a default by the region of Catalunya. In this scenario,
Moody's assumed that the average recovery assumption for the pool
of SMEs would be approximately halved, compared with the assumption
used to determine the intrinsic credit quality of the guaranteed note
and the ratings of the non-guaranteed notes.
The principal methodology used in rating the non-guaranteed notes
or assessing the intrinsic credit quality of the guaranteed notes 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. Other methodologies
and factors that may have been considered in the process of rating these
notes can also be found on Moody's website.
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
Detailed rating actions by issuer
Issuer: FONCAIXA FTGENCAT 5 Fondo de Titulizacion de Activos
....EUR449.4M A (G) Certificate,
Downgraded to Aa1 (sf); previously on Jul 5, 2010 Aaa (sf)
Placed Under Review for Possible Downgrade
Issuer: GAT FTGENCAT 2006 FONDO DE TITULIZACIÓN DE ACTIVOS
....EUR239.1M A2(G) Notes, Downgraded
to A1 (sf); previously on Jul 5, 2010 Aa1 (sf) Placed Under
Review for Possible Downgrade
Issuer: GAT FTGENCAT 2007, FTA
....EUR280.8M A2(G) Certificate,
Downgraded to Aa2 (sf); previously on Jul 31, 2009 Downgraded
to Aa1 (sf) and Remained On Review for Possible Downgrade
The rating have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligations satisfactory for the purposes of maintaining
the credit ratings.
However, the credit rating actions were based on limited historical
data on asset correlations between a sovereign state and an ABS tranche
backed by corporate borrowers in that sovereign state.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their 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.
The lead analyst and rating office for each of the transactions affected
is generally different from the contact and office listed at the end of
this press release. For each transaction, the lead analyst
is available on the issuer page and the rating office on the ratings tab
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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.
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
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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.
MD - Structured Finance
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's France SAS
Moody's downgrades ratings on Catalunya guaranteed notes in 3 Spanish ABS SME
96 Boulevard Haussmann
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