Downgrades follow expected amendments that increase linkage with originating bank
Frankfurt am Main, November 30, 2011 -- Moody's Investors Service has today downgraded to Aa3 (sf) from Aaa (sf)
the ratings of senior notes issued by (i) FTPYME TDA 7, FTA;
(ii) TDA EMPRESAS 1, FTA; (iii) TDA EMPRESAS 2, FTA;
(iv) IM SABADELL EMPRESAS 3, FTA; and (v) GC SABADELL EMPRESAS
4, FTA. The first four are Spanish SME ABS transactions,
while the last is a Spanish lease ABS transaction.
All affected ratings are listed at the end of ratings rationale section
of the press release.
RATINGS RATIONALE
Today's rating action follows expected amendments to the affected transactions'
documents, which will weaken the rating criteria to a minimum rating
of P-2 from a minimum rating of P-1 for the transactions'
(i) account banks; and (ii) institutions holding the collateral posting.
This modification increases the linkage between the transactions and Banco
Sabadell (A3/P-2), which is the current account bank for
the affected transactions, and the expected losses under the senior
notes due to additional commingling risk.
- LINKAGE TO BANCO SABADELL
The downgrade of the senior notes reflects the inability of the transactions
to achieve a Aaa (sf) rating as the transactions' accounts currently remain
at a P-2 rated entity (and are expected to remain at such a rated
entity as per the proposed amendments), which is not in line with
Moody's published rating criteria ("The Temporary Use of Cash In Structured
Transactions: Eligible Investment Guidelines"). The negative
effects due to this increased linkage to Banco Sabadell cannot be fully
offset by increased credit support and Moody's concluded that the highest
achievable rating is Aa3 (sf) for the affected transactions.
Given that the transactions' accounts will remain at Banco Sabadell
and will not be transferred, both collections and reserve funds
in all transactions will be exposed to commingling risk in the event of
a potential default of Banco Sabadell. During the review process,
Moody's tested various scenarios of additional commingling loss,
focusing in particular on the effects of the potential unavailability
of the reserve fund to the credit and liquidity profile of the transaction
upon Banco Sabadell's hypothetical insolvency.
Banco Sabadell is currently holding the reinvestment accounts or treasury
accounts of the affected transactions, which are the accounts holding
the collections received from the securitised assets during a quarterly
period. At the same time, the affected transactions'
reserve funds are also deposited in their Banco Sabadell accounts.
The reserve funds in the affected transactions provide credit enhancement
and the sole liquidity sources. At present, the reserve fund
accounts for the following percentage of the outstanding notes balance
in each transaction:
- 8% FTPYME TDA 7, FTA;
- 11% in TDA EMPRESAS 1, FTA;
- 36% in TDA EMPRESAS 2, FTA;
- 29% in IM SABADELL EMPRESAS 3, FTA;
- 20% in GC SABADELL EMPRESAS 4, FTA.
Banco Sabadell acts as swap provider in IM SABADELL EMPRESAS 3,
FTA and GC SABADELL EMPRESAS 4, FTA. Under the expected amendments,
the collateral posting required under the swap documentation (following
the breach of the first level of ratings) will also remain in an institution
rated at least at P-2.
- KEY REVISED ASSUMPTIONS IN IM SABADELL EMPRESAS 3, FTA
Moody's has reassessed its lifetime default expectation for the collateral
pool underpinning the IM SABADELL EMPRESAS 3, FTA transaction.
The portfolio includes a large exposure to a few borrowers, with
the largest borrower representing 10% of the portfolio, and
the sum of the largest 5 and 10 borrowers representing 26% and
38%, respectively.
Moody's stressed the default probability it assumes for these large borrowers,
which represented more than 3% of the current pool, and assumed
their default probabilities to be equivalent to a Caa2 rating.
In addition, the rating agency took into account the transaction's
exposure to the real-estate market (41% of the current pool
as of September 2011 according to Moody's classification). Consequently,
these revised assumptions have been translated into a 25% cumulative
mean default assumption for the current portfolio. This implies
a revised cumulative mean default for the entire transaction (since closing)
equal to 15% of the total securitised pool, compared with
14.5% at closing.
Given the heterogeneity of the portfolio (with an effective number of
borrowers of 46), Moody's used a Monte Carlo simulation to derive
the gross default distribution. As a result of the simulation,
the coefficient of variation reached 45%, compared with 60%
at closing. The recovery rate and prepayment rate remain at 50%
and 5% assumption at closing.
The reassessment of IM SABADELL EMPRESAS 3, FTA also took into account
(i) the interest rate swap provided by Banco Sabadell; and (ii) a
variety of stress scenarios conducted by Moody's, in which
there is no current swap agreement with guaranteed excess spread.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
Except for IM SABADELL EMPRESAS 3, FTA, key modelling assumptions,
sensitivities, cash-flow analysis and stress scenarios have
not been updated for the affected transactions as the rating action has
been primarily driven by increased disruption and commingling risk following
the non transfer of the various accounts from Banco Sabadell. Should
Moody's further downgrade Banco Sabadell and the accounts not being
transferred, the ratings of the five affected transactions would
be negatively impacted.
During the review, Moody's used its excel-based cash flow
model, Moody's ABSROM™, as part of its quantitative
analysis of the transaction. In the review of IM SABADELL EMPRESAS
3, FTA, Moody's used CDOROM to model the cash flows and determine
the loss for each tranche. The Moody's CDOROM™ is a
Monte Carlo simulation, which takes the Moody's default probabilities
as input.
The methodologies used in these ratings were Moody's Approach to Rating
CDOs of SMEs in Europe, published in February 2007 and 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. Please see the
Credit Policy page on www.moodys.com for a copy of these
methodologies.
List of affected ratings:
Issuer: FTPYME TDA 7, FTA
....EUR230.3M A1 Notes, Downgraded
to Aa3 (sf); previously on Jul 26, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
....EUR18.3M A2(CA) Notes, Downgraded
to Aa3 (sf); previously on Jul 26, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: GC Sabadell Empresas 4, FTA
....EUR525.8M A Notes, Downgraded
to Aa3 (sf); previously on Jun 10, 2009 Definitive Rating Assigned
Aaa (sf)
Issuer: IM Sabadell Empresas 3, Fondo de Titulización
de Activos
....EUR1409.4M A Notes, Downgraded
to Aa3 (sf); previously on Jun 24, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: TDA Empresas 1, FTA
....EUR214.5M A Notes, Downgraded
to Aa3 (sf); previously on Jul 26, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: TDA EMPRESAS 2, FTA
....EUR156.3M A Notes, Downgraded
to Aa3 (sf); previously on Jul 26, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties 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 these transactions
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.
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.
Yuezhen Wang
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 senior notes of five Spanish ABS transactions
