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Global Credit Research - 22 Dec 2010
Mexico, December 22, 2010 -- Moody's de México ("Moody's") has downgraded a Mexican construction
loan securitization issued and serviced by Crédito Inmobiliario
(CICB08 Series A certificates) to Caa3 (sf) from B3 (sf) (Global Scale,
Local Currency), and to Caa3.mx (sf) from Ba3.mx (sf)
(Mexican National Scale). This rating action concludes the review
for possible downgrade that was initiated on April 21st, 2010.
The complete rating action is as follows:
Originator and Servicer: Crédito Inmobiliario S.A.
Issuer: HSBC Mexico S.A., Institución
de Banca Múltiple, Grupo Financiero HSBC, División
Fiduciaria, acting solely as trustee.
-- CICB08 Series A Certificates: downgraded to Caa3
(sf) from B3 (sf) (Global Scale, Local Currency) and to Caa3.mx
(sf) from Ba3.mx (sf) (Mexican National Scale).
Today's downgrade of the CICB08 certificates reflects a severe credit
deterioration of the portfolio, a significant decline in collections
arising from home sales proceeds resulting from a considerable slowdown
in the pace of sales, the current negative excess spread of the
transaction, and the high portfolio concentration in terms of projects.
The loan portfolio has experienced a sharp deterioration in performance
in recent months. As of October 2010, 73.2%
of the pool was delinquent (more than 31 days past due in interest payments)
and 45.2% of the pool was defaulted (over 120+ days
past due in interest payments). According to information provided
by Crédito Inmobiliario, 39% of the portfolio is currently
in the initial phases of "deed in lieu" or foreclosure proceedings,
and the remainder of the portfolio has been restructured or is in a restructuring
process to extend the loans' maturity date.
Monthly interest and principal collections have remained significantly
weak during the last six months. The monthly principal collection
rate was approximately 2% of the pool balance as of October 2010.
Furthermore, the transaction's excess spread is currently
negative as interest collections on the loans have been less than the
amounts needed to pay interest on the certificates. Even though
the transaction has sufficient cash in the form of an interest reserve
account and other reserves to make interest payments due in the next following
months, the negative excess spread is eroding credit enhancement
available to absorb portfolio losses.
According to the company, the severe credit deterioration of the
portfolio is a consequence of a significant slowdown in house sales.
As a result, the maturity of a large percentage of loans in the
pool has been extended. If the negative sales trend continues,
there is a higher risk of project delays that may extend the life of numerous
loans beyond the final maturity date of the transaction. In addition,
there is a high degree of uncertainty around the time to recover loans
in foreclosure proceedings, which represent 30.4%
of the pool. Consequently, loan collections may not be received
on time to repay the rated certificates by the legal final maturity.
As of October 2010, the senior certificates had gross credit enhancement
of 24% in the form of overcollateralization and cash holdings equivalent
to MXP$114 million to protect against extension and default risk.
However, some of these cash holdings may be needed to make future
disbursements on loans that have not yet fully utilized their available
lines of credit. As of October 2010, the average construction
completion rate for the underlying housing development projects was approximately
73% across 22 projects, weighted by their total lines of
The portfolio is exposed to high loan concentrations, which increase
the risk of losses if a large loan experiences stress. As of October
2010 the top project represented 21% of the pool, while the
top five projects represented 53% of the pool. Approximately
30% of the pool is concentrated in the residential sector,
with average home values of MXP$1.523 million. The
residential housing sector is riskier than the low-income housing
sector, which benefits from a housing shortage and more readily
available mortgage financing from quasi-governmental entities.
Furthermore, approximately 30% of the pool balance is comprised
of vertical construction housing, where construction has to be nearly
100% finished before sales can materialize.
Moody's notes that the transaction is in early amortization since September
2009, new loans cannot be transferred to the trust, and all
principal collections must be used to amortize the certificates after
establishing the appropriate reserves to fund future disbursements for
existing projects. However, as of this time, the required
reserves have not been established and as a result the transaction has
not began to amortize. The legal maturity for the CICB08 senior
certificates is May 2013.
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 on its sales phase, construction advance
greater or lower than 70% , deed in lieu or in foreclosure
proceedings), sector type (low income, middle income or residential)
and delinquency status. Recovery rates ranged from 35% to
95% of the projected home sales on the pool. According to
Moody's projections of cash flows and future disbursements for certain
pool loans, the recovery rate of the certificates will be of approximately
70% of the certificates' balance. Ratings on the senior
certificates can be upgraded if our recovery rate assumptions increases.
The expected recovery rate for a B1 rating (global scale) or a Baa1.mx
to a Baa3.mx (national scale) rating ranges from 99% to
Primary sources of assumption uncertainty are the levels of homes sales
in Mexico and for the 22 projects included in the pool, as housing
demand can be impacted by regional macroeconomic factors such as rises
in unemployment, and the availability of home financing, particularly
in the middle and residential 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,
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 Caa3.mx (sf) a construction loan securitization originated by Crédito Inmobiliario in Mexico
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
No Related Data.
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