Mexico, February 07, 2011 -- Moody's de México ("Moody's") has downgraded a Mexican construction
loan securitization serviced by Hipotecaria Su Casita (HSCCB 06 Series
A certificates) to B3 (sf) from B1 (sf) (Global Scale, Local Currency),
and to Ba3.mx (sf) from Baa1.mx (sf) (Mexican National Scale).
This rating action concludes the review for possible downgrade that was
initiated on September 20, 2010. In addition, Moody's
has withdrawn the B1 (sf) underlying rating of the transaction for business
reasons, after the Ambac financial guarantee on the senior certificates
Originator and Servicer: Hipotecaria Su Casita, S.A.
de C.V. Sociedad Financiera de Objeto Múltiple E.N.R.
Issuer: Banco J.P. Morgan S.A.,
Institución de Banca Múltiple, J.P.
Morgan Grupo Financiero, División Fiduciaria, acting
solely as trustee.
-- HSCCB 06 Series A Certificates: to B3 (sf) from
B1 (sf) (Global Scale, Local Currency), and to Ba3.mx
(sf) from Baa1.mx (sf) (Mexican National Scale).
- HSCCB 06 Series A Certificates: B1(sf) underlying rating
Today's downgrade of the HSCCB 06 Series A certificates reflects a considerable
credit deterioration of the portfolio in recent months, particularly
in the percentage of loans that are defaulted with respect to interest,
the increase in the number of loans that are in foreclosure proceedings,
and the continued low level of monthly collections arising from home sales
The rating action also reflects Moody's concerns about Su Casita's stability
as servicer as a result of the recent downgrade of the company's issuer
ratings. During economic downturns a servicer´s financial
strength becomes even more important in connection with the performance
of the portfolio under management. There is a risk that a company
with a weakened financial strength may have a limited ability to devote
sufficient resources to sustain its servicing capabilities in a difficult
economic environment. This in turn, may adversely impact
Moody's notes that the transaction is currently in early amortization.
On January 24, 2011, investors voted to remove Ambac as a
financial guarantor. As a result, Moody's has withdrawn
the B1 underlying rating for business reasons.
Additionally, in the January 2011 bondholder's meeting investors
approved the use of a significant portion of the trust's cash reserves
(or MXN$361 million) to amortize the certificates. As a
result, as of February 1, 2011, the certificates had
an outstanding balance of MXN$886 million, representing 51%
of the original bond balance. The transaction still benefits from
a MXN$150 million reserve for future disbursements to be used for
performing projects that require funds to finalize construction.
The legal maturity for the HSCCB 06 senior certificates is September 2016.
The loan portfolio has experienced a sharp deterioration in performance
in recent months. As of December 2010, approximately 79%
of the pool was defaulted with respect to interest or principal (defined
as 90 or more days past due with respect to interest or 30 or more days
past due with respect to principal). Moody's notes that as
of December 2010 the percentage of the pool defaulted with respect to
interest (or 90+ days past due) increased significantly as the largest
project (representing 20% of the pool) was reported as 4 months
past due with respect to interest. However, as of the prior
month, or November 2010, Su Casita had reported that same
loan as 0 months past due with respect to interest. According to
Su Casita, this loan was negotiating a term extension and this process
took over three months. During this time no interest was generated
in their systems; however, once the term was extended,
the interest accrued and not generated was recognized. In addition,
22 projects representing approximately 52% of the pool balance
are in foreclosure process or will start foreclosure proceedings soon.
The average construction completion rate for the underlying housing development
projects was approximately 81% across 77 projects, weighted
by their outstanding loan amounts, as of December 2010. Additionally,
approximately 36% of the pool balance consists of vertical construction
housing, which is riskier than horizontal construction since construction
has to be nearly 100% finished before sales can materialize.
Principal collections have been rather low in recent months, averaging
approximately 2.3% as a percentage of the pool balance over
the last six months.
The portfolio is exposed to high loan concentrations, which increases
the risk of losses if a large loan experiences stress. As of December
2010 the top project represented 20% of the pool, while the
top ten projects represented 50% of the pool. The largest
loan is a vertical project targeting tourists/second home buyers,
with a 77% construction rate, a high average home price of
MXP$5.6 million, and in severe delinquency status.
Approximately 51% of the pool is concentrated in the residential
or residential plus sectors, with average home values of MXP$1.9
million. The residential and residential plus housing sectors are
riskier than the low-income housing sector, which benefits
from a housing shortage and more readily available mortgage financing
from quasi-governmental entities. As of December 2010,
the senior certificates' had credit enhancement of 30% in the form
of overcollateralization and cash holdings to protect against extension
and default risk.
In taking today's rating action, Moody's stressed projected
loan collections on a loan by loan basis according to the project status
(whether the project is in its sales phase, construction advance
greater or lower than 70% , deed in lieu or in foreclosure
proceedings), sector type (low income, middle income,
residential or residential plus) and delinquency status. Recovery
rates ranged from 25% to 95% of the projected home sales
on the pool. Moody's applied an overall stress of 51%
to projected home sales proceeds. According to Moody's projections
of cash flows and future disbursements for certain pool loans, the
projected recovery rate on the affected certificates is consistent with
a B3 rating. Ratings on the senior certificates may be downgraded
if our recovery rate assumptions decrease. The expected recovery
rate for a B3 rating (global scale) or a Baa3.mx to a Ba2.mx
(national scale) rating ranges from >95% to 97%.
Primary sources of assumption uncertainty are the levels of homes sales
in Mexico and for the 77 projects included in the pool and the amount
of recoveries in a foreclosure process. Housing demand can be impacted
by regional macroeconomic factors such as rises in unemployment,
and the availability of home financing, particularly in the middle,
residential and residential plus sectors, where mortgage financing
is not as readily available as it is in the low-income housing
sector. In addition, demand for a particular housing project
can be impacted by factors specific to the project such as the price of
the units, quality of construction and amenities and location,
among others. Finally, there is no information available
from Su Casita regarding recoveries from a finalized foreclosure process
on a construction project. Moody's will monitor the transaction
and any new information regarding sales and foreclosure proceeds.
The principal methodology used in this rating action was "Moody's Approach
to Rating Low-Income Residential Construction Loan Securitizations
in Mexico", published in August, 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. 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 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
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's information.
Moody's considers the quality of information available on the issuer
satisfactory for the purposes of maintaining a credit rating.
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
and accurate data may not be available. Consequently, Moody's
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.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's de Mexico S.A. de C.V
Moody's downgrades to B3 (sf) / Ba3.mx (sf) the HSCCB 06 certificates, a construction loan securitization from Hipotecaria Su Casita in Mexico
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000