London, 27 March 2013 -- Moody's Investors Service has today downgraded by two notches the junior
tranche of BBVA Consumo 4 and upgraded by one to four notches the ratings
of three mezzanine or junior tranches of BBVA Consumo 1 and BBVA Consumo
2. At the same time, Moody's confirmed the ratings
of six tranches (rated from Caa2(sf) to A3(sf)) of BBVA Consumo1,
BBVA Consumo 2, BBVA Consumo 3 and BBVA Consumo 4. While
increased counterparty risk triggered the downgrade of the junior tranche
of BBVA Consumo 4, sufficient credit enhancement, which protects
against sovereign and counterparty risk, primarily drove the upgrade
and rating confirmations.
Today's rating action concludes the review for downgrade initiated
by Moody's on 02 July 2012. These four transactions are Spanish
asset-backed securities (ABS) transactions backed by consumer loans
originated by Banco Bilbao Vizcaya Argentaria, S.A.
(BBVA, Baa3/P-3). For a detailed list of the affected
ratings, see towards the end of the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the availability of sufficient
credit enhancement to address sovereign and increased counterparty risk.
The introduction of new adjustments to Moody's modelling assumptions
to account for the effect of deterioration in sovereign creditworthiness
has had no effect on the ratings of six classes of notes in the four transactions.
Furthermore, the current level of credit enhancement available under
the Class C notes of BBVA Consumo 1 and under the Class B and C notes
of BBVA Consumo 2 in the form of reserve funds or subordination is sufficient
to support the following upgrades: to Baa3 (sf) from Ba2 (sf) for
Class C notes of BBVA Consumo 1; to Baa1 (sf) from Baa2 (sf) for
the Class B and to Ba1 (sf) from B2 (sf) for the Class C notes of BBVA
Consumo 2.
While sovereign risk is largely mitigated by the high level of credit
enhancement (49.5%) as of December 2012, increased
counterparty risk drove the downgrade of the Class B notes of BBVA Consumo
4. As this credit enhancement is entirely in the form of a reserve
fund held at BBVA (Baa3/P-3), the Class B notes are strongly
linked to BBVA's rating. Moody's downgraded the Class
B notes to Baa2 (sf) from A3 (sf) to reflect this strong linkage.
The quality of the assets backing the notes today allows for a one-notch
uplift from BBVA's rating.
-- Additional Factors Better Reflect Increased Sovereign
Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the local currency country risk
ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's
intends to better reflect increased sovereign risk in its quantitative
analysis, in particular for mezzanine and junior tranches.
The Spanish country ceiling is A3, which is the maximum rating that
Moody's will assign to a domestic Spanish issuer including structured
finance transactions backed by Spanish receivables. The portfolio
credit enhancement represents the required credit enhancement under the
senior tranche for it to achieve the country ceiling. By lowering
the maximum achievable rating, the revised methodology alters the
loss distribution curve and implies an increased probability of high loss
scenarios.
Under the updated methodology incorporating sovereign risk on ABS transactions,
loss distribution volatility increases to capture increased sovereign-related
risks. Given the expected loss of a portfolio and the shape of
the loss distribution, the combination of the highest achievable
rating in a country for structured finance and the applicable credit enhancement
for this rating uniquely determines the volatility of the portfolio distribution,
which the coefficient of variation (CoV) typically measures for ABS transactions.
A higher applicable credit enhancement for a given rating ceiling or a
lower rating ceiling with the same applicable credit enhancement both
translate into a higher CoV.
-- Moody's Revises Key Collateral Assumptions
Moody's maintained its default and recovery rate assumptions for
the four transactions, which it updated on 18 December 2012 (see
"Moody's updates key collateral assumptions in Italian and
Spanish ABS transactions backed by portfolio of consumer and auto loans"
[http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Italian-and-Spanish-ABS--PR_262879]).
According to the updated methodology, Moody's increased the
CoV, which is a measure of volatility.
For BBVA Consumo 1, the current default assumption is 6.0%
of the current portfolio and the assumption for the fixed recovery rate
is 20.0%. Moody's has increased the CoV to
79.5% from 25.0%, which, combined
with the revised key collateral assumptions, corresponds to a portfolio
credit enhancement of 22.5%.
For BBVA Consumo 2, the current default assumption is 8.5%
of the current portfolio and the assumption for the fixed recovery rate
is 20.0%. Moody's has increased the CoV to
55.9% from 27.5%, which, combined
with the revised key collateral assumptions, corresponds to a portfolio
credit enhancement of 22.5%.
For BBVA Consumo 3, the current default assumption is 12.0%
of the current portfolio and the assumption for the fixed recovery rate
is 20.0%. Moody's has increased the CoV to
45.8% from 30.0%, which, combined
with the revised key collateral assumptions, corresponds to a portfolio
credit enhancement of 25.5%.
For BBVA Consumo 4, the current default assumption is 13.0%
of the current portfolio and the assumption for the fixed recovery rate
is 30.0%. Moody's has increased the CoV to
49.9% from 30.0%, which, combined
with the revised key collateral assumptions, corresponds to a portfolio
credit enhancement of 25.5%.
-- Moody's Has Considered Exposure to Counterparty
Risk
The conclusion of Moody's rating review also takes into consideration
the increased exposure to commingling due to weakened counterparty creditworthiness.
In all transactions, BBVA acts as servicer and collections account
bank, and transfers collections daily to the treasury accounts in
the name of the funds at BBVA. The reserve funds also reside at
BBVA.
In BBVA Consumo 1 and 2, Société Générale,
Sucursal en Espana (SGSE, A2/ P-1) guarantees the cash held
in the treasury accounts up to EUR33 million and EUR35 million,
respectively. In addition, any cash held at the treasury
accounts in excess of the guarantee amount is transferred on an ongoing
basis to SGSE's additional treasury accounts (in the name of the
funds). For these two transactions, Moody's incorporated
into its analysis the potential default of BBVA as servicer and considered
medium linkage between the rating of the notes and the rating of BBVA,
which could expose the transaction to a limited commingling loss of one
month of collections.
In BBVA Consumo 3 and 4, the treasury accounts in the name of the
funds are held by BBVA. Collections are transferred by the servicers
on a daily basis to the treasury accounts at BBVA, and the treasury
account bank has to be replaced upon BBVA's rating falling below
Baa3. For these two transactions, Moody's incorporated
into its analysis the potential default of BBVA as servicer and treasury
account and considered strong linkage between the rating of the notes
and the rating of BBVA, which could expose the transaction to a
commingling loss on the quarterly collections and a loss on the reserve
fund.
Deutsche Bank A.G (London branch) (A2/P-1) acts as swap
counterparty in BBVA Consumo 1 and BBVA Consumo 2 while BBVA acts as swap
counterparty in BBVA Consumo 3 and BBVA Consumo 4. As part of its
analysis, Moody's assessed the exposure to the swap counterparties,
which in all transactions does not have a negative effect on the rating
levels at this time.
-- Other Developments May Negatively Affect the Notes
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
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 further negatively affect the ratings of the notes.
Moody's describes additional factors that may affect the ratings
in its Request for Comment, "Approach to Assessing Linkage to Swap
Counterparties in Structured Finance Cash flow Transactions: Request
for Comment", 02 July 2012.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted considering
the probabilities of the lognormal distribution assumed for the portfolio
default rate. In each default scenario, Moody's calculates
the corresponding loss for each class of notes given the incoming cash
flows from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss for each tranche is the sum product
of the probability of occurrence of each default scenario and the loss
derived from the cash flow model in each default scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
In the context of the rating review, the transactions have been
remodelled and some inputs have been adjusted to reflect the new approach
described above. In addition, Moody's has corrected
the input for some coupons for BBVA Consumo 1, 2 and 3 during the
review.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating Consumer Loan ABS Transactions", published in October
2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
The revised approach to incorporating country risk changes into structured
finance ratings forms part of the relevant asset class methodologies,
which Moody's updated and republished or supplemented on 11 March
2013, along with the publication of its Special Comment " Structured
Finance Transactions: Assessing the Impact of Sovereign Risk".
Other factors used in these ratings are described in "The Temporary Use
of Cash in Structured Finance Transactions: Eligible Investment
and Bank Guidelines", published in March 2013.
LIST OF AFFECTED RATINGS
Issuer: BBVA Consumo 1, FTA
....EUR1447.5M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR28.5M B Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR24M C Notes, Upgraded to Baa3
(sf); previously on Jul 2, 2012 Ba2 (sf) Placed Under Review
for Possible Downgrade
Issuer: BBVA Consumo 2, FTA
....EUR1440.7M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR16.5M B Notes, Upgraded
to Baa1 (sf); previously on Jul 2, 2012 Baa2 (sf) Placed Under
Review for Possible Downgrade
....EUR42.8M C Notes, Upgraded
to Ba1 (sf); previously on Jul 2, 2012 B2 (sf) Placed Under
Review for Possible Downgrade
Issuer: BBVA Consumo 3 Fondo de Titulizacion de Activos
....EUR916.5M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR58.5M B Notes, Confirmed
at Caa2 (sf); previously on Jul 2, 2012 Caa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: BBVA Consumo 4, Fondo de Titulización de Activos
....EUR937.7M A Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
....EUR162.3M B Notes, Downgraded
to Baa2 (sf); previously on Jul 2, 2012 A3 (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
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.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alix Faure
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Gintz
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes multiple actions on four Spanish consumer loans ABS
