London, 10 April 2013 -- Moody's Investors Service has today downgraded by three notches the rating
of the Class B notes and confirmed the ratings of two senior notes in
BBVA 6 FTPYME, FTA. At the same time, Moody's
confirmed the ratings of all the notes in BBVA 5 FTPYME, FTA and
the ratings of two senior notes in BBVA 3 FTPYME, FTA. Moody's
also upgraded by two notches to Baa2 (sf) from Ba1 (sf) the rating on
the Class C notes in BBVA 3 FTPYME, FTA. While insufficient
credit enhancement to address sovereign and counterparty risk triggered
today's downgrade of some tranches, the adequacy of credit
enhancement levels primarily drove the rating upgrade and confirmations
of the other tranches.
Today's rating action concludes the review for downgrade initiated by
Moody's on 02 July 2012, following the downgrade of Spain's
government bond ratings to Baa3 from A3 on 13 June 2012. All three
affected transactions are Spanish asset-backed securities (ABS)
transactions backed by loans to small and medium-sized enterprises
(SME) originated by Banco Bilbao Vizcaya Argentaria, S.A.
(Baa3 /P-3, not on watch).
See towards the end of the ratings rationale section of this press release
for a detailed list of affected ratings.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
of the notes downgraded to address sovereign and counterparty risk,
and the adequate levels of credit enhancement of the notes upgraded and
confirmed. All Spanish SME ABS affected by today's rating action
are impacted by the introduction of new adjustments to Moody's modelling
assumptions to account for the effect of deterioration in sovereign creditworthiness.
This action also reflects the revision of key collateral assumptions.
Moody's confirmed the ratings of securities whose credit enhancement and
structural features provided enough protection against sovereign and counterparty
risk.
The determination of the applicable credit enhancement that drives today's
rating action reflects the introduction of additional factors in Moody's
analysis to better measure the impact of sovereign risk on structured
finance transactions (see "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk", 11 March 2013). This report
is available on www.moodys.com and can be accessed via the
following link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF319988.
-- 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 transactions and the applicable
credit enhancement for this rating uniquely determine 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 three
transactions, which it updated on 18 December 2012 (see "Moody's
updates key collateral assumptions in Spanish ABS transactions backed
by loans to SMEs", http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Spanish-ABS-transactions-backed--PR_262512).
According to the updated methodology, Moody's increased the CoV,
which is a measure of volatility.
For BBVA 3 FTPYME, the current default assumption is 8.7%
of the current portfolio and the assumption for the fixed recovery rate
is 50%. Moody's has increased the CoV to 112% from
55%, which, combined with the mean DP and recovery
assumptions, corresponds to a portfolio credit enhancement of 23.7%.
For BBVA 5 FTPYME, the current default assumption is 12%
of the current portfolio and the assumption for the fixed recovery rate
is 45%. Moody's has increased the CoV to 81% from
45%, which, combined with the mean DP and recovery
assumptions, corresponds to a portfolio credit enhancement of 23.9%.
For BBVA 6 FTPYME, the current default assumption is 16.3%
of the current portfolio and the assumption for the fixed recovery rate
is 45%. Moody's has increased the CoV to 68% from
45%, which, combined with the mean DP and recovery
assumptions, corresponds to a portfolio credit enhancement of 26.6%.
-- Moody's Has Considered Exposure to Counterparty
Risk
The conclusion of Moody's rating review also takes into consideration
the exposure of the three transactions to BBVA, which performs various
roles in the transactions (servicer, collection account, issuer
account and swap counterparty).
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. Soci?t? G?n?rale, Sucursal
en Espana (SGSE, A2/ P-1) guarantees the cash held in the
treasury accounts up to EUR12 million for BBVA 3 FTPYME, EUR9 million
for BBVA 5 FTPYME and EUR10 million for BBVA 6 FTPYME, 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 three transactions,
Moody's incorporated into its analysis the potential default of BBVA as
servicer and considered the linkage between the rating of the notes and
the rating of BBVA to be medium. This could expose the transaction
to a limited commingling loss of one month of collections
As part of its analysis, Moody's also assessed the exposure to BBVA
as swap counterparty in the three transactions. Based on the provided
information, BBVA has been posting cash collateral on a weekly basis.
The revised ratings of the notes, which reflect the insufficiency
of credit enhancement to address sovereign risk, are consistent
with this exposure.
-- 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 the
Request for Comment, "Approach to Assessing Linkage to Swap Counterparties
in Structured Finance Cashflow 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 inverse normal 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, Moody's has remodeled
the transactions and adjusted a number of inputs to reflect the new approach
described above. In addition, during its review the rating
agency corrected the interest deferral trigger input for the Class C notes
in BBVA 3 FTPYME.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating CDOs of SMEs in Europe", published in February 2007.
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-3 FTPYME, FONDO DE TITULIZACION DE ACTIVOS
....EUR215.3M A2(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR40.8M B Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR18.6M C Notes, Upgraded
to Baa2 (sf); previously on Jul 2, 2012 Ba1 (sf) Placed Under
Review for Possible Downgrade
Issuer: BBVA 5 FTPYME Fondo de Titulizacion de Activos
....EUR1472.8M A1 Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR200M A2 Notes, Confirmed at A3
(sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed
Under Review for Possible Downgrade
....EUR130.3M A3(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Placed Under Review for Possible Downgrade
....EUR39.9M B Notes, Confirmed
at Baa2 (sf); previously on Jul 2, 2012 Baa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: BBVA-6 FTPYME, Fondo de Titulizaci?n
de Activos
....EUR1201.9M A1 Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
....EUR215.5M A2(G) Notes, Confirmed
at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf)
and Remained On Review for Possible Downgrade
....EUR50.3M B Notes, Downgraded
to Caa1 (sf); previously on Jul 2, 2012 B1 (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.
Frederic Lautard
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Christophe?de Noaillat
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Yuezhen Wang
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
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 three Spanish SME ABS transactions: BBVA 3 FTPYME, FTA, BBVA 5 FTPYME, FTA and BBVA 6 FTPYME, FTA
