London, 16 December 2011 -- Moody's Investors Service has completed a performance review of
the Spanish RMBS market and updated its portfolio loss assumptions in
67 transactions. A list of the 67 transactions with the updated
assumptions is available at the following link:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF270864
Moody's has also placed on review for downgrade the ratings of 47
tranches in 20 transactions because of worse than expected collateral
performance. The full list of affected RMBS ratings by tranche
is detailed in the following link:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF270870
RATINGS RATIONALE
Today's rating action reflects (i) the performance to date of the affected
transactions; (ii) the level of credit enhancement supporting the
notes; and (iii) Moody's negative outlook for Spanish RMBS collateral.
--TRANSACTION PERFORMANCE
Performance improvements shown by Spanish RMBS in 2009-10 reversed
at the beginning of 2011. The index of 90+ day arrears increased
to 1.1% in September 2011 from 0.9% in January
2011, while the cumulative defaults index increased to 2.1%
from 1.95%, respectively. Annualised redemption
rates decreased considerably to 3.1%, indicating that
portfolios will remain outstanding for a longer-than-anticipated
period of time, exacerbating uncertainty regarding future performance.
For more information on collateral performance, please see Moody's
quarterly "Spanish Prime RMBS Indices".
--KEY COLLATERAL ASSUMPTIONS REVISED
Moody's has revised its expected loss assumptions for the Spanish RMBS
portfolio considering the current amount of realized losses, and
completing a roll-rate and severity analysis for the non-defaulted
portion of the portfolios. In the revision of its assumptions Moody's
has considered the negative outlook for the Spanish collateral performance
and in particular the expectations that house prices will continue to
fall in 2012 as described below.
In the 67 transactions where Moody's revised its assumptions the
expected portfolio losses are now in the range of 1.0% to
3.7% of the current pool balance. For the overall
Spanish RMBS market Moody's is assuming an average of 1.5%
future losses for seasoned transactions with relatively good assets performance.
In the case of less seasoned transactions showing below average performance
Moody's expects on average 4.8% of future losses.The
actual levels vary by transaction, depending on portfolio characteristics
such as indexed loan-to-value (LTV) ratios, seasoning
and performance to date.
Moody's identified and today placed on review for downgrade 47 tranches
in 20 transactions whose ratings are at risk because credit enhancement
is insufficient to offset the increase in the loss assumptions.
Expected loss assumptions remain subject to uncertainties such as general
future economic activity, interest rates and house prices.
Lower than assumed realised recovery rates or higher than assumed default
rates would negatively affect the ratings of the transactions.
--OUTLOOK FOR SPANISH RMBS
Moody's outlook for Spanish RMBS transactions in 2012 is negative.
Rising unemployment and falling disposable incomes resulting from slowing
economic growth will weigh on households' ability to service their
debts. Moody's expects that house prices in Spain will fall
in 2012 mainly because of an oversupply of houses and weak demand.
Falling house prices will lead to lower recovery values on RMBS that use
residential property as collateral. Poor housing market liquidity
will lead to less certainty about whether a property can be sold and will
increase the time it takes to sell the property.
The risk of sovereign default or the exit of countries from the euro area
is rising (see "Rising Severity of Euro Area Sovereign Crisis Threatens
Credit Standing of All EU Sovereigns," published on 28 November
2011). As a result, Moody's could lower the maximum achievable
rating for structured finance transactions in some countries, which
could result in rating downgrades.
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 rating 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, the corresponding
loss for each class of notes is calculated given the incoming cash flows
from the assets and the outgoing payments to third parties and note holders.
Therefore, the expected loss for each tranche is the sum product
of (i) the probability of occurrence of each default scenario; and
(ii) 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.
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 this transaction in the past
six months
Moody's considers the quality of information available on the rated entity,
obligation or credit 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its 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.
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.
end
Lyudmila Udot
Analyst
Structured Finance Group
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
Barbara Rismondo
VP - Senior Credit Officer
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 updates assumptions in 67 Spanish RMBS and reviews ratings in 20 Spanish RMBS for downgrade
