Actions follow country ceilings upgrades
Madrid, February 24, 2015 -- Moody's Investors Service has today upgraded the ratings of seven notes,
confirmed the ratings of two notes and downgraded the rating of one note
in five Spanish asset-backed securities (ABS) transactions.
The upgrades of the local-currency country risk ceilings to Aa2
from A1 in Spain on 20 January 2015 prompted today's rating actions.
Please refer to the revised methodology on country ceilings and the new
ceiling applied to euro area countries:
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_316765.
Transactions affected by today's rating action are five ABS backed by
SME loans:
- FONCAIXA FTGENCAT 4, FTA
- GAT FTGENCAT 2006, FTA
- GAT FTGENCAT 2007, FTA
- GAT FTGENCAT 2008, FTA
- GC FTGENCAT CAIXA TARRAGONA 1, FTA
Please refer to the end of the Ratings Rationale section for a list of
affected ratings.
RATINGS RATIONALE
The main drivers behind today's upgrades are (1) the reduced country risk
as reflected by the increase in the maximum achievable rating in Spain
and (2) sufficiency of credit enhancement in the affected transactions.
Moody's has downgraded the rating of the Class D notes in GAT FTGENCAT
2008, FTA due to the lowering in the credit enhancement protection
under such notes, as a result of the increasing principal deficiency
in the capital structure.
Moody's has also confirmed the ratings of Class B and Class C notes in
GAT FTGENCAT 2007, FTA where the current credit enhancement was
commensurate with the current ratings.
Moody's analysis incorporates the revisions, when needed,
of EL assumptions taking into account the collateral performance to-date
as well as the exposure to relevant counterparty servicers, account
banks and swap providers. Moody's cash flow sensitivity stress
tests as well as borrower concentration analysis were also taken into
account in today's rating actions and limited the upgrade of two notes
in two deals (see below).
--- INCREASED LOCAL-CURRENCY COUNTRY CEILINGS
The country ceilings reflect a range of risks that issuers in any jurisdiction
are exposed to, including economic, legal and political risks.
On 20 January 2015, Moody's announced a six-notch uplift
between a government bond rating and its country risk ceiling for Spain.
As a result, the maximum achievable ratings for covered bonds and
structured finance transactions were increased to Aa2 from A1 for Spain.
--- ASSUMPTIONS
Moody's has revised its volatility assumption in those transactions given
the reduced country risk. The rest of assumptions remain unchanged
given the stable performance of the transactions and the stable outlook
for Spanish ABS.
In FONCAIXA FTGENCAT 4, FTA the unchanged DP on the current balance
of 11.0%, together with the recovery rate of 55%
and the updated volatility of 93.2%, corresponds to
an unchanged portfolio credit enhancement of 24.5%.
In GAT FTGENCAT 2006, FTA the unchanged DP on the current balance
of 20%, together with the recovery rate of 50% and
the updated volatility of 43.0%, corresponds to an
unchanged portfolio credit enhancement of 25.8%.
In GAT FTGENCAT 2007, FTA the unchanged DP on the current balance
of 26.0%, together with the recovery rate of 55%
and the updated volatility of 47.5%, corresponds to
an unchanged portfolio credit enhancement of 28.8%.
In GAT FTGENCAT 2008, FTA the unchanged DP on the current balance
of 25%, together with the recovery rate of 45% and
the updated volatility of 35%, corresponds to an unchanged
portfolio credit enhancement of 45.9%.
In GC FTGENCAT CAIXA TARRAGONA 1, FTA the unchanged DP on the current
balance of 30.3%, together with the recovery rate
of 50% and the updated volatility of 41.2%,
corresponds to an unchanged portfolio credit enhancement of 34.3%.
Moody's has incorporated the sensitivity of the ratings to borrower concentrations
into the quantitative analysis. In particular, Moody's considered
the credit enhancement coverage of large debtors in GAT FTGENCAT 2006,
FTA as it shows significant exposure to large debtors. The results
of this analysis limited the potential upgrade of the rating on the class
C Notes of GAT FTGENCAT 2006, FTA to Ba1 (sf) as credit enhancement
of 18.8% only covers top six debtors.
--- EXPOSURE TO COUNTERPARTIES
Today's rating actions took into consideration the notes' exposure to
relevant counterparties, such as servicers, account banks
or swap providers. Moody's considered how the liquidity available
in the transactions and other mitigants support continuity of note payments,
in case of servicer default.
Moody's also assessed the default probability of each transaction's account
bank providers. Moody's analysis considered the risks of additional
losses on the notes in the event of them becoming unhedged, following
a swap counterparty default. This consideration limited the potential
upgrades on the class B Notes of GC FTGENCAT CAIXA TARRAGONA 1,
FTA to Ba1 (sf), given the additional credit support provided by
the swap counterparty (CECABANK S.A., Ba3/NP),
which pays over a notional equal to the outstanding balance of the notes.
Given this characteristic and the expected increase in PDL given the default
assumption, the loss on these notes in the event of becoming unhedged
would be significantly higher than for standard interest rate swaps.
--- RATING SENSITIVITY
To ensure rating stability and to test the sensitivity of the note ratings,
Moody's ran stressed scenarios in cash flow models before upgrading the
relevant notes.
The stressed scenarios assume (1) a 25% stresses for the default
probability assumption; and (2) a 20% increase in the portfolio
CE assumption. The ratings were upgraded when the negative rating
impact resulting from the above test was within the sensitivity tolerance.
The sensitivity test to key collateral assumptions have constrained the
upgrade of Class A(G) Notes in FONCAIXA FTGENCAT 4, FTA as well
as Class C Notes in GAT FTGENCAT 2008, FTA.
The principal methodology used in these ratings was Moody's Global Approach
to Rating SME Balance Sheet Securitizations published in January 2015.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the ratings
are (1) a lower probability of high-loss scenarios owing to an
upgrade of the country ceiling; (2) performance of the underlying
collateral that exceeds Moody's expectations; (3) deleveraging of
the capital structure; and (4) improvements in the credit quality
of the transaction counterparties.
Factors or circumstances that could lead to a downgrade of the ratings
are (1) an increased probability of high-loss scenarios owing to
a downgrade of the country ceiling; (2) performance of the underlying
collateral that does not meet Moody's expectations; (3) deterioration
in the notes' available CE; and (4) deterioration in the credit quality
of the transaction counterparties.
LIST OF AFFECTED RATINGS:
Issuer: FONCAIXA FTGENCAT 4, FTA
....EUR326M A (G) Notes, Upgraded to
Aa3 (sf); previously on Jan 23, 2015 A3 (sf) Placed Under Review
for Possible Upgrade
....EUR9.6M B Notes, Upgraded
to Baa2 (sf); previously on Jan 23, 2015 Ba2 (sf) Placed Under
Review for Possible Upgrade
....EUR7.2M C Notes, Upgraded
to Ba2 (sf); previously on Jan 23, 2015 B1 (sf) Placed Under
Review for Possible Upgrade
....EUR6M D Notes, Upgraded to B3 (sf);
previously on Jan 23, 2015 Caa1 (sf) Placed Under Review for Possible
Upgrade
Issuer: GAT FTGENCAT 2006, FTA
....EUR12.3M C Notes, Upgraded
to Ba1 (sf); previously on Jan 23, 2015 Ba2 (sf) Placed Under
Review for Possible Upgrade
Issuer: GAT FTGENCAT 2007, FTA
....EUR11.6M B Notes, Confirmed
at B1 (sf); previously on Jan 23, 2015 B1 (sf) Placed Under
Review for Possible Upgrade
....EUR33.8M C Notes, Confirmed
at Caa3 (sf); previously on Jan 23, 2015 Caa3 (sf) Placed Under
Review for Possible Upgrade
Issuer: GAT FTGENCAT 2008, FTA
....EUR40.5M C Notes, Upgraded
to Baa1 (sf); previously on Jan 23, 2015 Baa2 (sf) Placed Under
Review for Possible Upgrade
....EUR20.3M D Notes, Downgraded
to Ba3 (sf); previously on Jan 23, 2015 Ba2 (sf) Placed Under
Review for Possible Upgrade
Issuer: GC FTGENCAT CAIXA TARRAGONA 1, FTA
....EUR25.7M B Notes, Upgraded
to Ba1 (sf); previously on Jan 23, 2015 Ba2 (sf) Placed Under
Review for Possible Upgrade
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
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.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Antonio Tena
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
Carole Gintz
Senior Vice President/Manager
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 takes rating actions on five Spanish ABS deals
