Seven tranches in six Spanish ABS also placed on downgrade review as part of wider sector review
Madrid, November 04, 2011 -- Moody's Investors Service has today placed on review for downgrade the
ratings of 112 tranches in 77 residential mortgage-backed securities
(RMBS) due to low credit enhancement. Today's action follows
Moody's two-notch downgrade of the rating of the government of
the Kingdom of Spain to A1 with a negative outlook, from Aa2.
For full details, please refer to "Moody's downgrades Spain's government
bond rating to A1 with a negative outlook," and "Moody's
assesses the impact on Spanish structured finance transactions following
sovereign downgrade," both published on 18 October 2011.
The full list of affected RMBS ratings by tranche is detailed in the following
link:
http://moodys.com/viewresearchdoc.aspx?docid=PBS_SF266602
Seven tranches in six Spanish ABS have also been placed on downgrade review
as part of wider sector review; for full details please refer to
"Moody's reviews for downgrade 7 Spanish ABS notes following
the downgrade of the Kingdom of Spain", published on 4 November
2011.
Moody's expects that it will conclude the rating reviews within
six months. Moody's anticipates that following its review
of each transaction's ability to withstand severe stress scenarios,
it will confirm a number of the ratings it has today placed on review
for downgrade because of credit enhancement build up or other structural
aspects. Additionally, Moody's expects that Aaa (sf)
notes will suffer a limited rating migration into the Aa (sf) category.
As previously stated on 18 October 2011, Moody's believes that a
Aaa(sf) rating remains possible for Spanish structured finance transactions
that (i) benefit from sufficient credit enhancement; and (ii) have
highly rated transaction parties or appropriate structural mitigants in
place. Structural features and credit enhancement will continue
to help mitigate the effects of deteriorating collateral risk and potential
performance disruption in a severe event and the level of uncertainty
around these scenarios. We discussed the relationship between sovereign
ratings and structured finance ratings in Moody's Special Report "Assessing
the Impact of the Eurozone Sovereign Debt Crisis on Structured Finance
Transactions," published in April 2011.
RATINGS RATIONALE
Today's action primarily reflects the increased risk that the factors
driving the downgrade of the Spanish sovereign may lead to a significant
and uniform deterioration in Spanish RMBS asset performance. Whilst
the probability of such extreme events remains very low, it has
reached a point where current levels of credit enhancement and structural
protection for highly rated senior notes are, in some cases,
insufficient to support the highest rating levels of Aaa(sf) and Aa(sf).
Moody's believes that for Spanish RMBS to achieve a Aaa(sf) rating the
minimum level of credit enhancement should be in the range of 15%
to 20% depending on pool characteristics. For today's
action, Moody's assessed the Aaa(sf) ratings of Spanish RMBS tranches
with credit enhancement levels in or below the minimum range listed above.
In addition, Moody's focused on tranches rated in the Aa(sf)
category that have credit enhancement below 70% of the minimum
ranges listed above.
Moody's is maintaining its Aaa(sf) rating on a number of transactions
with credit enhancement levels lower than the minimum range of 15%
to 20% because of the significant differences in the quality of
portfolios of different Spanish originators. In its assessment
of RMBS transactions, Moody's considered the vintage of the deal,
the current collateral performance and the increase in credit enhancement
expected over the near term. In addition, Moody's did
not place on review for downgrade senior notes with very short remaining
lives.
In relation to RMBS transactions originated on or before 2005 with good
asset performance and highly seasoned collateral, Moody's
is maintaining the Aaa(sf) rating for notes with a credit enhancement
equal or greater than 10% and the ratings in the Aa(sf) category
for notes with a credit enhancement equal or greater than 7%.
Moody's has placed on review for downgrade the notes in 15 transactions
that did not meet these criteria. Moody's has also placed
on review the senior note of TDA CAM 5 which has relatively low credit
enhancement to mitigate the below average collateral performance.
In the case of transactions closed on or after 2006, Moody's
has placed on review for downgrade (i) the Aaa(sf) for most notes with
credit enhancement below 15%; and (ii) notes rated in the
Aa(sf) category with credit enhancement below 10.5%.
In the case of transactions with below average collateral performance,
Moody's has placed on review for downgrade the Aaa(sf) notes with
credit enhancement below 20% and notes rated in Aa(sf) category
with credit enhancement below 14%.
Key modelling assumptions, sensitivities, cash-flow
analysis and stress scenarios have not been updated as today's action
has been primarily driven by (i) credit enhancement tests; and (ii)
Moody's assessment of the collateral performance and pool characteristics.
Uncertainty mainly stems from the negative outlook on the Spanish government's
debt rating that reflects ongoing economic and financial risks in Spain.
For full details, please refer to "Moody's downgrades Spain's government
bond rating to A1 with a negative outlook ". The highest achievable
structured finance rating for Spanish structured finance transactions
may be revised progressively downwards if the likelihood of those events
were to increase.
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was Moody's Approach to
Rating RMBS in Europe, Middle East, and Africa published in
October 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In addition, the minimum credit enhancement required for each RMBS
transaction in markets exposed to country-specific systemic risk
is determined based on the assumptions with regards to the potential losses
on the residential mortgage portfolios in case of a severe country-specific
event. This minimum credit enhancement varies by country and it
can be adjusted to take into account collateral quality. These
adjustments are not expected to result in significant variations in minimum
credit enhancements required for different RMBS transactions in countries
such as Spain.
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 rating are the following:
parties involved in the ratings, parties not 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 this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 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.
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.
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
Neal Shah
MD - Structured Finance
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 reviews for downgrade 112 Spanish RMBS notes following the downgrade of the Kingdom of Spain
