Approximately EUR 4.6 billion of debt securities affected.
London, 12 November 2009 -- Moody's Investors Service announced today that it has downgraded the ratings
of:
- the junior notes (Class D, E and F) issued by FTA Santander
Hipotecario 2 (Santander 2)
- all the notes issued by FTA Santander Hipotecario 3 (Santander
3)
- all the notes issued by FTA Santander Hipotecario 4 (Santander
4)
Last rating action date for Santander 2, 3 and 4 was 5 June 2009.
Today's rating action was prompted by the prolonged deterioration and
worse-than-expected performance of the collateral backing
the notes. The downgrades also reflect Moody's negative sector
outlook for Spanish RMBS and the weakening of the macro-economic
environment in Spain, including the expected increase in unemployment
rates projected for 2009 and 2010 as well as the deterioration of the
Spanish housing market.
PORTFOLIO PERFORMANCE, RESERVE FUNDS, PDLs
Santander 2, 3 and 4 closed in June 2006, March 2007 and September
2007 respectively. The transactions are backed by portfolios of
first-ranking mortgage loans originated by Banco Santander S.A.
(Aa2/P-1) and secured on residential properties located in Spain,
for an overall balance, at closing, of EUR 1.95 billion
(Santander 2), EUR 2.8 billion (Santander 3) and EUR 1.23
billion (Santander 4). The collateral consisted exclusively,
at closing, of loans with a loan-to-value (LTV) over
80%. These high LTV loans represent 52%, 72.6%
and 81% of the outstanding pool balance of, respectively,
Santander 2, 3 and 4 as of October 2009. The portfolios are
concentrated in the coastal area (Andalusia, Catalonia, Canary
Islands, Valencia and Murcia), representing 57%,
58% and 63% of current pool balance in Santander 2,
3 and 4 respectively. Although Moody's did not receive loan-by-loan
information on the borrowers' residency status, we understand
that a sizeable share of loans was originated to non-Spanish nationals.
Moody's had already taken action on the three transactions in November
2008. But, the collateral performance in the transactions
has deteriorated further since last rating review resulting in the depletion
of the reserve fund and build-up in unpaid Principal Deficiencies
Ledgers (PDL). Moody's observed a rapid increase in loans
being written-offs as well as the number of properties being acquired
by Banco Santander, mirroring the overall deterioration in loan
pools. Banco Santander ends up holding mortgaged properties on
behalf of the three fondos when (1) the properties fail to sell at auction
or (2) after resorting to "dacion en pago". "Dacion
en pago" is a voluntary agreement under which the lender accepts
the property as a payment in kind, releasing the debtor from his
debt. Cumulative property acquisitions currently represent 1.6%,
5.4% and 7.5% of initial pool balance in the
Santander 2, 3 and 4 respectively -- up from 0.5%,
1.32% and 1.42% of Santander 2, 3 and
4 respectively as at the last rating review. Moody's believe
that the higher share of property acquisition in the Santander RMBS is
to a large extent associated with "dacion en pago",
which may, in practice, be offered to non-Spanish nationals
where access to the assets of the defaulted borrowers may be complex or
unemployed borrowers with no additional assets available to repay the
outstanding debt after the repossession process. Moody's has already
previously expressed concerns over the future performance of the transactions
given the rapid performance deterioration of these relatively low seasoned
portfolios and the uncertainties relating to timing and amount of future
recoveries.
The Santander 3 and 4 are currently performing well outside of Moody's
revised expectations as of the latest rating review, in terms of
late-stage arrears and defaults (including property acquisitions).
Santander 2 is performing better than Santander 3 and 4, with credit
trends now following market average for Spanish RMBS from the 2006 vintage.
The 90+ delinquencies (excluding outstanding write-offs and
property acquisitions) correspond to approximately 1.84%,
4.66% and 9.75% of the current portfolio balance,
in Santander 2, 3 and 4 respectively. The aggregate of (1)
cumulative balance of loans associated with property acquisitions,
(2) net losses in relation to acquisitions (corresponding to the difference
between outstanding debt and acquisition amount), and (3) cumulative
defaulted loans (these being defined as 18 months in arrears) increased
by between three to five times since the last rating review, having
reached 2.38%, 6.18% and 8.5%
of original pool balance in Santander 2, 3 and 4 respectively.
The weak performance of Santander 3 and 4 has been mainly driven by the
high loan-to-value (LTVs) ratios of the securitised mortgage
loans and by the exposure to borrowers without Spanish citizenship affected
by difficult economic conditions such as increasing unemployment and declining
house prices. We understand that Santander 3 and 4 portfolios include
a share of loans originated via broker, as opposed to Banco Santander
S.A. having originated all the loans securitised in Santander
2.
The increase in the volume of delinquent loans, artificial write-offs
and property acquisitions ultimately resulted in the full depletion of
the reserve fund and build-up in unpaid PDL in all three Santander
transactions. According to the latest investor cash flow statements,
unpaid PDL currently stand at EUR 8.7 million, EUR 111.7
million and EUR 73.7 million, or 0.7%,
5.0% and 7.4% of the current notes balance
of Santander 2, 3 and 4 respectively. Available funds in
both transactions will ultimately increase as recoveries from written-off
loans are collected and properties being acquired are sold. However,
the pace at which loans are moving from arrears into defaults suggests
that current unpaid PDL will not be completely cured.
AMORTISATION AND INTEREST DEFERRAL TRIGGERS
In Santander 3 and 4, the Class A1, A2 and A3 are currently
amortising sequentially following the breach of pro-rata amortization
triggers (90d+ arrears exceeding 1.5% of current pool
balance). The amortization of the senior, mezzanine and junior
notes is expected to remain sequential for the remaining life of the deals
given breach of triggers. Despite the increase in write-offs
and property acquisitions, the interest deferral triggers on junior
notes in the Santander transactions have not been breached at this stage.
Although the Santander transactions provide for a full provisioning of
all defaulted loans, including repossessions and "dacion en pago",
the interest deferral triggers in the Santander transactions are based
on the balance of the loans classified as "non-performing" which
corresponds to loans with unpaid installments for more than 18 months
and loans classified as unrecoverable by the servicer. (The "non-performing
loans" currently represent 0.95%, 2.1%
and 2.95% of original pool balance in Santander 2,
3 and 4 respectively).This definition excludes the full balance
of loans associated with property acquisitions, but that are not
more than 18 months delinquent. Under the servicer's interpretation
of the meaning of non-performing loans, these interest deferral
triggers are far from being breached as the non-performing loans
have to exceed 7%, 6% and 7.7% of original
balance in FTA Santander 2, 3 and 4 to divert payment on the most
junior notes. In this review, Moody's took into account the
servicer's interpretation of non-performing loans and modeled the
interest deferral triggers accordingly.
REVISED LIFETIME LOSS AND MILAN Aaa CE
Moody's has reassessed its lifetime loss expectation for Santander,
2, 3 and 4 to account for the collateral performance to date as
well as our expectations for these transactions in the context of a current
macroeconomic environment in Spain. On the basis of the rapid deterioration
in credit trends in Santander 3 and 4, we have updated the portfolio
expected loss assumption from a range of 2.95%-3.35%
to 7.2% of original balance in Santander 3 and from a range
of 3.65%-4.05% to 10% of original
balance in Santander 4. Santander 2 has shown stabilizing credit
trends over the last two reporting periods with 90d+ arrears decreasing
from 2.14% in April to 1.87% in the last reporting
period. Additionally, the pace at which loans are moving
into write-offs or the properties are being acquired in Santander
2 has been moderating over the same period. Moody's has therefore
affirmed the expected loss of Santander 2 at 2.1% of original
balance.
As part of its analysis, Moody's has also assessed loan-by-loan
information for the outstanding portfolios to determine the credit support
consistent with target rating levels and the volatility of the distribution
of future losses. For this review, "Moody's Updated Methodology
for Rating Spanish RMBS" was used. As a result, Moody's
has revised its MILAN Aaa credit enhancement (MILAN Aaa CE) assumptions
to 22% for Santander 3 and 27% for Santander 4. Moody's
affirmed the Milan Aaa CE for Santander 2 at 15%. The loss
expectation and the Milan Aaa CE are the two key parameters used by Moody's
to calibrate its loss distribution curve, which is one of the core
inputs in the cash-flow model it uses to rate RMBS transactions.
Current credit enhancement under Aaa-rated Class A notes (including
subordination and reserve fund and taking into consideration the amount
of unpaid PDLs) is 11.7%, 5.1% and 3.2%
for Santander 2, 3 and 4 respectively as at the last payment date
in October.
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transaction. Other risks have not been
addressed, but may have a significant effect on yield to investors.
Moody's initially analysed the transactions referred to in this press
release using the rating methodology for Spanish RMBS transactions as
described in the report "Moody's Approach to Rating Spanish RMBS:
the 'Milan' Model," March 2005, and it monitors the performance
of the transaction using rating methodologies described in the reports
"Moody's Updated Methodology for Rating Spanish RMBS," July 2008,
and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction,"
December 2008. These reports can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. 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.
LIST OF DETAILED RATING ACTIONS
Issuer: Fondo de Titulización de Activos Santander Hipotecario
2
- Class A, Confirmed at Aa1; previously on 5 June 2009,
Aa1 Placed Under Review for Possible Downgrade
- Class B, Confirmed at Aa3; previously on 5 June 2009,
Aa3 Placed Under Review for Possible Downgrade
- Class C, Confirmed at A3; previously on 5 June 2009,
A3 Placed Under Review for Possible Downgrade
- Class D, Downgraded to Ba2; previously on 5 June 2009,
Ba1 Placed Under Review for Possible Downgrade
- Class E, Downgraded to Caa2; previously on 5 June
2009, B3 Placed Under Review for Possible Downgrade
- Class F, Downgraded to C; previously on 5 June 2009,
Ca Placed Under Review for Possible Downgrade
Issuer: Fondo de Titulizacion de Activos Santander Hipotecario 3
- Class A1, Downgraded to A3; previously on 5 June 2009,
Aa1 Placed Under Review for Possible Downgrade
- Class A2, Downgraded to A3; previously on 5 June 2009,
Aa1 Placed Under Review for Possible Downgrade
- Class A3, Downgraded to A3; previously on 5 June 2009,
Aa1 Placed Under Review for Possible Downgrade
- Class B, Downgraded to B3; previously on 5 June 2009,
A3 Placed Under Review for Possible Downgrade
- Class C, Downgraded to Caa3; previously on 5 June
2009, Baa3 Placed Under Review for Possible Downgrade
- Class D, Downgraded to C; previously on 5 June 2009,
Ba3 Placed Under Review for Possible Downgrade
- Class E, Downgraded to C; previously on 5 June 2009,
B3 Placed Under Review for Possible Downgrade
- Class F, Downgraded to C; previously on 5 June 2009,
Ca Placed Under Review for Possible Downgrade
Issuer: Fondo de Titulizacion de Activos Santander Hipotecario 4
- Class A1, Downgraded to Baa3; previously on 5 June
2009, Aa2 Placed Under Review for Possible Downgrade
- Class A2, Downgraded to Baa3; previously on 5 June
2009, Aa2 Placed Under Review for Possible Downgrade
- Class A3, Downgraded to Baa3; previously on 5 June
2009, Aa2 Placed Under Review for Possible Downgrade
- Class B, Downgraded to Caa2; previously on 5 June
2009, A3 Placed Under Review for Possible Downgrade
- Class C, Downgraded to Ca; previously on 5 June 2009,
Baa3 Placed Under Review for Possible Downgrade
- Class D, Downgraded to C; previously on 5 June 2009,
Ba3 Placed Under Review for Possible Downgrade
- Class E, Downgraded to C; previously on 5 June 2009,
B3 Placed Under Review for Possible Downgrade
- Class F, Downgraded to C; previously on 5 June 2009,
Ca Placed Under Review for Possible Downgrade
Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Carole Bernard
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades several Spanish RMBS notes issued by FTA Santander Hipotecario 2, 3 and 4
