Approximately EUR 62.5 billion of debt securities affected
Madrid, November 23, 2012 -- Moody's Investors Service has today taken rating actions on 156
Spanish residential mortgage-backed securities (RMBS) transactions
further to its reassessment of the entire Spanish RMBS market.
The rating agency's reassessment takes into consideration the continued
collateral performance deterioration, the rating agency's
updated European RMBS rating methodology and ongoing deterioration in
the credit quality of the Spanish sovereign and transactions' counterparties.
Moody's has commented on these three ratings drivers, which
have developed over the past 12 months, in its Special Comment,
"European ABS and RMBS: Structured finance ratings in Aaa-countries
ratings are stable; downgrades expected in other countries"
published on 14 November 2012. Link: http://www.moodys.com/research/European-ABS-and-RMBS-Structured-finance-ratings-in-Aaa-countries--PBS_SF302185.
Specifically, Moody's has today downgraded the ratings of
196 notes previously rated at the country ceiling , 61 notes previously
rated below A3 (sf) and confirmed the ratings of 63 notes out of 156 Spanish
RMBS transactions. Moody's downgraded the senior notes by
an average of 1 to 2 notches and junior notes by an average of 1 to 4
notches. The downgrades are driven primarily by revised key collateral
assumptions following Moody's reassessment of the entire Spanish
RMBS sector. As part of today's rating action, Moody's
has also concluded its rating review of 16 Spanish RMBS transactions placed
on review on 8 June 2012, following the release of the rating agency's
updated methodology for rating EMEA RMBS transactions.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308352
for the list of affected ratings. This list is an integral part
of this press release. For a detailed rationale on each rating
action, please refer to the list of affected credit ratings.
At the same time, Moody's has revised key collateral assumptions
in 25 other transactions, which did not result in any rating action
due to sufficient credit enhancement. The list of updated assumptions
for the entire Spanish RMBS sector is available in the following link
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308353.
Moody's has confirmed the ratings of notes rated at the country
ceiling with sufficient credit enhancement and adequately mitigated exposure
to counterparties. All Spanish RMBS notes rated above Ca (sf) and
not confirmed by today's rating action remain on review pending
reassessment of required credit enhancement to address country risk exposure.
Some tranches are also on review pending assessment of rating linkage
to counterparties.
RATINGS RATIONALE
Today's rating action reflects, for most Spanish RMBS tranches,
the revision of key collateral assumptions following Moody's reassessment
of the entire Spanish RMBS sector. Moody's expects a contracting
Spanish economy and high unemployment in 2013, as the government
pursues austerity measures to cut the budget deficit. The oversupply
of houses, weak demand and Spanish eviction moratorium, which
came into effect in November 2012, will contribute to uncertainties
relating to the timing and amount of future recoveries on repossessed
properties.
The rating agency maintained the key collateral assumptions in a number
of transactions but downgraded senior tranches because of insufficient
credit enhancement to achieve the country ceiling.
-- REVISION OF KEY COLLATERAL ASSUMPTIONS
Moody's has revised the portfolio loss assumptions because of worse-than-expected
collateral performance. Moody's has also reassessed the credit
quality of the outstanding Spanish RMBS portfolios to determine the credit
enhancement (MILAN CE) required under the senior tranche for it to achieve
the country ceiling. For this analysis, Moody's used
the updated methodology to rate EMEA RMBS transactions. See "Moody's
Approach to Rating RMBS in Europe, Middle East, and Africa"
(6 June 2012) for the updated European RMBS rating methodology.
The rating agency has increased (1) lifetime expected losses (EL) in 82
RMBS transactions; and (2) the MILAN credit enhancement (CE) assumptions
in 167 RMBS transactions.
- Expected loss (EL)
Since Moody's last revision of assumptions in December 2011,
Spanish collateral performance has continued to deteriorate. Moody's
Spanish Prime RMBS index reported 90+ day delinquencies at 2.04%
in September 2012, up from 1.20 % in December 2011.
The cumulative defaults index increased to 2.85% in September
2012, up from 2.14% in December 2011. Annualised
redemption rates remained flat over the past year, currently representing
3.84%. Cash recoveries in the Spanish RMBS market
have been limited to-date because of falling Spanish house prices
and low property market liquidity. See "Spanish Prime RMBS Indices"
for more information on collateral performance.
The continued deterioration in 90+ day arrears and cumulative defaults
in the Spanish RMBS market translated into higher projected EL assumptions
for certain portfolios. Moody's negative outlook for Spanish
RMBS is reflected in the updated assumptions. Moody's revised its
assumptions of expected losses in 82 transactions. For the overall
Spanish RMBS market Moody's is assuming an average of 1.9%
future losses for seasoned transactions with relatively good asset performance.
In the case of less seasoned transactions showing below average performance
Moody's expects on average 6% of future losses.
- MILAN CE
Moody's has revised its MILAN CE assumptions following the publication
of the updated methodology used in its RMBS collateral analysis.
The key changes to the EMEA RMBS methodology include the introduction
of a transaction minimum credit enhancement level and to various default
and severity settings in the scoring model. The overall MILAN CE
is subject to two separate floors, the Minimum Portfolio MILAN CE
and the Minimum Expected Loss Multiple. The Minimum Portfolio MILAN
CE for Spanish RMBS ranges between 10%-15% to A3(sf)
rating, or country ceiling. The Minimum Expected Loss Multiple
incorporates the updated EL assumptions.
-- INSUFFICIENCY OF CREDIT ENHANCEMENT FOR SENIOR NOTES
TO ACHIEVE COUNTRY CEILING
Moody's downgraded 8 notes in 7 transactions due to insufficient credit
enhancement despite maintaining the key collateral assumptions.
In Moody's opinion, the affected senior securities available credit
enhancement is insufficient to compensate for the EL or MILAN CE assumptions.
As a result, these Spanish securities cannot achieve the maximum
achievable rating of A3(sf).
-- SUFFICIENT CREDIT ENHANCEMENT TO ACHIEVE COUNTRY CEILING
AND ADEQUATELY MITIGATED EXPOSURE TO COUNTERPARTIES
Moody's has confirmed the ratings of 63 notes rated at the country
ceiling with sufficient credit enhancement and adequately mitigated exposure
to counterparties. Out of these 63 transactions Moody's increased
MILAN CE or EL in 52 transactions but the credit enhanacement is sufficient
to offset the revised assumptions. In addition, Moody's believes
that the credit enhanacement supporting these notes provides adequate
cushion against country risk exposure.
-- FIRST DRIVER FOR REVIEW PLACEMENT: REASSESSMENT
OF CREDIT ENHANCEMENT TO ADDRESS COUNTRY RISK EXPOSURE
Moody's maintains on review for downgrade the ratings of notes rated above
Ca (sf) in order to reassess credit enhancement adequacy levels,
given the higher risk of economic and financial instability. Moody's
is continuing to consider the impact of the deterioration of the sovereign's
financial condition and the resulting asset portfolio deterioration on
tranches of structured finance transactions.
-- SECOND DRIVER FOR REVIEW PLACEMENT: ASSESSMENT
OF LINKAGE TO COUNTERPARTIES
Some senior and subordinated notes also remain on review pending Moody's
assessment of the rating linkage to counterparties. The rating
agency will assess the degree of linkage by taking into account payment
disruption risk and the high exposure to swap providers or to issuer account
banks.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
As the euro area crisis continues, the ratings of 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 affect the ratings of the notes.
On 21 August 2012, Moody's released a request for comment seeking
market feedback on proposed adjustments to its modelling assumptions.
These adjustments are designed to account for the impact of rapid and
significant country credit deterioration on structured finance transactions.
If the adjusted approach is implemented as proposed, the rating
of the Spanish RMBS included those affected by today rating action may
be negatively affected. See "Approach to Assessing the Impact of
a Rapid Country Credit Deterioration on Structured Finance Transactions",
(21 August 2012) (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880)
for further details regarding the implications of the proposed methodology
changes on Moody's ratings.
Additional factors that may affect the resolution of these reviews are
described in "The Temporary Use of Cash in Structured Finance Transactions:
Eligible Investment and Bank Guidelines: Request for Comment" (http://www.moodys.com/research/The-Temporary-Use-of-Cash-in-Structured-Finance-Transactions-Eligible--PBS_SF289341
) and "Approach to Assessing Linkage to Swap Counterparties in Structured
Finance Cashflow Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772),
both published on 2 July 2012.
Key modelling assumptions, such as expected loss and MILAN CE assumptions
have been updated. Potential sensitivities, cash flow analysis
and stress scenarios for the affected transactions have not been updated,
as the rating actions have been primarily driven by (1) the update of
the key assumptions; and, as a consequence, (2) Moody's
decision to assess credit enhancement levels consistent with each structured
finance rating category.
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS in Europe, Middle East, and Africa",
published in June 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Moody's approach to country risk ceilings is described in "Local
Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations"
(http://www.moodys.com/research/Local-Currency-Country-Risk-Ceiling-for-Bonds-and-Other-Local--PBC_140182),
published on 16 August 2012.
The rating considerations described in this press release complement the
principal rating methodologies applicable to Spanish RMBS transactions
affected by today's rating action (see link provided above in this press
release for a full list of affected credit ratings).
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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Barbara Rismondo
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Bernard
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 review of Spanish RMBS sector triggers rating actions on 156 transactions
