London, 13 June 2012 -- Moody's Investors Service announced today that it has downgraded the rating
of senior notes issued by ICO Mediacion II Ayt, F.T.A.
The notes affected by today's rating action are as follows:
....EUR 14, 864.7 million Class
A Notes (current balance EUR 6,282.6 million), Downgraded
to A2 (sf); previously on April 27, 2012 Aa2 (sf) Placed under
Review for Possible Downgrade
This cash balance sheet CDO which closed in July 2010 has one rated class
of notes with an underlying collateral pool composed entirely of senior
unsecured loans to around 90 Spanish financial institutions. Credit
enhancement is provided through over-collateralisation as well
as sizeable reserve funds currently amounting to c 80% of the rated
notes. The servicer and account bank roles are performed by Instituto
de Credito Oficial (ICO) which is fully owned and guaranteed by the Spanish
government. ICO also provides an interest rate swap to the issuer
to primarily hedge the basis risk between the interest receipts on the
underlying collateral loans and coupon payments on the notes.
RATINGS RATIONALE
Today's downgrade primarily reflects the un-remedied breach
of credit triggers in the transaction pursuant to the ratings downgrade
of ICO from A1/P-1 to A3/P-2 on 15 February 2012 and the
worsening credit quality of the pool as detailed below.
The May 2012 investor report reveals that the during the period November
2011 - May 2012, the pool amortised by 16.1%
to EUR 14,286.6 million, with Class A notes amortising
by 30.5% to EUR 6,282.6 million. The
largest five publicly rated obligors which constitute c 47% of
the pool by value currently have a weighted average Baa2 rating after
incorporating a one/two notch stress for negative outlook/review for downgrade
respectively as applicable on their current public ratings based on Moody's
rating methodology. This compares to an average A3 rating in April
2012 and average A2 rating at closing calculated in a similar fashion.
The rated notes benefit from substantial credit enhancement provided by
the EUR 8,004 million over-collateralization in the underlying
loan pool and the EUR 5 billion reserve funds in the transaction.
However these reserve funds, together with the other cash amounts
in the transaction, continue to held by ICO (A3/P-2),
currently in breach of the A2/P-1 minimum rating requirement as
account bank.
Moody's considers that the obligors in the collateral pool are highly
correlated with one another given that (i) while mitigated somewhat in
the case of BBVA and Santander by their international operations,
they largely run domestic businesses, thereby being highly exposed
to systemic issues such as adverse operating conditions, reduced
creditworthiness of the Spanish sovereign, continued restricted
access to market funding, and rapidly deteriorating asset quality
and (ii) the Spanish financial sector is going through an intense consolidation
process through mergers. Furthermore, ICO, the provider
of credit support for this transaction via the reserve funds held in the
account bank, is also highly correlated with the collateral pool
through its roles as the Spanish State's financial agency and providing
funding to Spanish SMEs through most of the financial institutions operating
in Spain. Moody's notes that this latter correlation is a
key consideration in its current analysis, now that the de-linkage
mechanism envisaged by the A2/P-1 credit trigger on the account
bank has been eroded by the un-remedied breach of the credit trigger.
In its review for downgrade on 27 April 2012, Moody's had
noted that absent remedial actions to find a guarantor or transferee satisfying
the A2/P-1 requirements, the ratings of ICO Mediacion II
AyT notes would be considered linked to the credit quality of ICO.
Moody's notes that the trigger breach has not yet been remedied.
Accordingly, the Class A notes are now rated A2; the one notch
uplift from ICO's rating derives from the significant credit enhancement
provided by the pool overcollateralization and the reserve fund.
Moody's notes that as the Euro area crisis continues, this
transaction remains exposed to the uncertainties of credit conditions
in the European economy especially as 100% of the portfolio is
exposed to financial institutions domiciled in Spain. The deteriorating
creditworthiness of euro area sovereigns as well as the weakening profile
of the global banking sector could negatively impact the rating of the
notes. Pursuant to the downgrade of the Spanish sovereign,
Moody's lowered the Class A Notes rating from Aaa(sf) to Aa2(sf)
in February 2012. For more information please refer to the Rating
Implementation Guidance published on 13 February 2012 "How Sovereign Credit
Quality May Affect Other ratings". Please also refer to Special
Comments "Key Drivers of Spanish Bank Rating Actions" published
on 17 May 2012 and "Rating Euro Area Sovereign Governments Through Extraordinary
Times - Implications of Spain's bank recapitalisation needs and
the rising risk of a Greek Exit" published on 08 June 2012.
Moody's did not run a separate loss and cash flow analysis;
in addition, key modelling assumptions, sensitivities,
cash flow analysis and stress scenarios have not been updated as this
downgrade has been primarily driven by the un-remedied breach of
credit triggers in the transaction coupled with a recent two notch decline
in the weighted average rating of c 47% of the pool as noted above.
The principal methodology used in this rating was "Moody's Approach
to Rating Corporate Collateralized Synthetic Obligations" published
in September 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In addition to the quantitative factors that are explicitly modelled,
qualitative factors are part of the rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature
and severity of credit stress on the transactions, may influence
the final rating decision.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
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 this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Raja Iyer
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
Neelam S. Desai
Senior Vice President
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 senior notes issued by ICO Mediacion II AyT, a balance sheet CLO
