Most Spanish ABS, RMBS and CLO ratings are on review for downgrade
Madrid, July 02, 2012 -- Moody's Investors Service has today downgraded to A3(sf) the ratings
of 583 securities across 328 structured finance transactions, including
asset-backed securities, residential mortgage-backed
securities and collateralised debt obligations (ABS, RMBS and CDOs).
Concurrently, Moody's has also placed or maintained on review
for downgrade the ratings of most Spanish ABS, RMBS and CDO securities.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF290362
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
The three drivers for today's downgrades and review placements are:
(i) Moody's decision on 26 June 2012 to lower 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, to A3, in connection with our
downgrade of Spain's government bond ratings to Baa3 from A3 on
13 June 2012and the initiation of a review for further downgrade.
(ii) Increased counterparty risks, following Moody's downgrade
of various Spanish banks' long-term ratings and the placement
of those bank ratings on review for further downgrade on 25 June 2012.
(iii) Moody's intention to re-assess the credit enhancement
levels consistent with each structured finance rating category,
given the deteriorating credit conditions in Spain.
For additional information on Structured Finance ratings, please
refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
--FIRST DRIVER --- NEW COUNTRY CEILING
AND SOVEREIGN RATING REVIEW
Moody's lowered to A3 the Spanish country ceiling, which signifies
the maximum rating that Moody's will assign to a domestic issuer,
including SF transactions backed by Spanish receivables (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143384).
The lowering of the ceiling was prompted by the increased risk of severe
financial and economic dislocation implied by the weakening of the Spanish
government's creditworthiness, as reflected by Moody's downgrade
of Spain's government bond ratings to Baa3 from A3 on 13 June 2012,
and the initiation of a review for further downgrade (http://www.moodys.com/research/Moodys-downgrades-Spains-government-bond-rating-to-Baa3-from-A3--PR_248236).
Spain's revised country ceiling captures Moody's assessment
of 'country' risks that need to be factored into the rating
of all locally domiciled obligors, i.e. risks that
arise from immutable political, institutional, financial and
economic factors within the country. They include the risk of systemic
economic disruption, the crystallisation of severe financial stability
risks and factors implying regulatory and legal uncertainty such as the
possibility of currency redenomination. The assessment of country
risk takes into account a number of the same factors that Moody's
considers when determining a sovereign's credit strength.
The highest achievable rating for most Spanish structured finance transactions
is now A3(sf), down from Aa2(sf) previously. This ceiling
also applies to Spanish structured finance transactions issued by non-Spanish
issuers, as these are backed entirely by Spanish assets with material
exposure to the risks reflected in the country ceiling. The only
Spanish structured finance securities that remain rated above A3(sf) are
those that benefit from a full and unconditional guarantee provided by
a non-Spanish counterparty rated higher than A3.
Moody's has placed or maintained on review the ratings of all Spanish
structured finance securities now rated at the new country ceiling in
consideration of the review for downgrade of the ratings of Spain's
government bonds and of those of Spanish banks.
--SECOND DRIVER --- INCREASED COUNTERPARTY
RISK
Following the 25 June downgrades of Spanish bank ratings, the ratings
of both Banco Santander S.A. (Baa2 deposits; BFSR C-/BCA
baa2, all on review for downgrade) and Santander Consumer Finance
S.A. (Baa2 deposits; BFSR C-/BCA baa2,
all on review for downgrade) are one notch higher than the sovereign's
rating (please see Moody's press release "Moody's downgrades
Spanish banks" (http://www.moodys.com/research/Moodys-
downgrades-Spanish-banks--PR_249316).
All other affected banks' standalone ratings are now at or below Spain's
Baa3 rating. Furthermore, Spanish bank ratings remain on
review for further downgrade, creating the potential for increased
operational and financial risks affecting Spanish ABS,RMBS and CDO
securities exposed to these banks.
The deterioration in the credit quality of Spanish banks negatively affects
structured finance securities because of the various roles that banks
play in these transactions. Moody's review of Spanish structured
finance ratings will reflect their degree of credit linkage to the affected
banks, depending on the credit quality of these banks, their
roles in the transactions and the likelihood of protection mechanisms
being available if they fail to perform their roles.
Moody's has placed or maintained on review all structured finance
securities rated in the Baa category due to the Spanish bank rating review
and in order to re-assess credit enhancement levels consistent
with this rating category.
--THIRD DRIVER --- RE-ASSESSMENT
OF CREDIT ENHANCEMENT FOR MEZZANINE AND JUNIOR SECURITIES
Moody's has placed on review for downgrade the ratings of Spanish
mezzanine and junior securities in order to re-assess the credit
enhancement levels consistent with each structured finance rating category
in light of deteriorating credit conditions in Spain and expected asset
performance deterioration. However, Moody's did not
place on review for downgrade ratings in these categories for a limited
number of ABS and RMBS securities that benefited from a high level of
credit enhancement that would be available to protect the notes against
further shocks.
RATING METHODOLOGIES
Sovereign credit quality impacts structured finance and covered bonds
ratings primarily through the performance of underlying collateral and
the credit quality of counterparties, as detailed in the Rating
Implementation Guidance "How Sovereign Credit Quality May Affect
Other Ratings" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_139495).
Structured finance and covered bond securities benefit from revenue diversification,
credit enhancement and other structural features. As a result they
can achieve higher ratings than other non-structured issuers and
may, where certain conditions are met, exceed the sovereign
by a limited number of notches, subject to the constraint of the
relevant country ceiling.
The purpose of the country ceiling (or 'guideline') is described
in the Rating Implementation Guidance "The Local Currency Deposit
Ceiling" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_98554).
Moody's is considering reintroducing individual country ceilings for other
euro area members, which could affect further the maximum structured
finance rating achievable in those countries, as discussed in Moody's
special report "Rating Euro Area Governments Through Extraordinary Times
-- An Updated Summary" (http://www.moodys.com/research/Rating-Euro-Area-Governments-Through-Extraordinary-Times-Implications-of-Spains--PBC_142756).
For notes that benefit from an external guarantee, Moody's
rating is the higher of the guarantor's rating and the underlying
rating of the notes.
The rating considerations described in this press release complement the
principal rating methodologies applicable to each Spanish ABS, RMBS
and CLO transaction, which are listed in the list of affected credit
ratings (link provided above in this press release).
Moody's rating methodology for the Spanish electricity tariff deficit
transactions considers the strength of the specific legislation enacted
to set forth the regulatory claims and the repayment mechanisms,
the creditworthiness and strategic role of key counterparties.
For further information on the rating approach, please see the new
issue reports publicly available for these transactions on Moody's website
.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
As the Euro area crisis continues, the rating of the 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 negatively impact the ratings of the notes.
Key modeling assumptions, sensitivities, cash-flow
analysis and stress scenarios for the affected transactions have not been
updated as the rating action has been primarily driven by the lowering
of Spain's country ceiling, the placement on review of Spanish
bank ratings and Moody's decision to re-asses credit enhancement
levels consistent with Spanish structured finance ratings.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF290362
for the list of each credit rating affected by a change in rating or review
status. This list is an integral part of this press release and
provides, for each of the credit ratings covered, Moody's
disclosures on the following items:
- Ratings Rationale
- Methodologies and Models applicable
- Person Approving Credit Ratings, Lead Analyst
- Releasing office
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 entities,
obligations or credits satisfactory for the purposes of issuing these
reviews.
Moody's adopts all necessary measures so that the information it uses
in assigning the ratings 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 entities or their 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the Lead Analyst, Rating Analyst,
Person Approving Credit Ratings, and the office that has issued
the credit rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on 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.
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
Ariel Weil
Vice President - Senior 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 to A3(sf) notes in 328 Spanish ABS, RMBS and CLO transactions
