NOTE: On October 30, 2014, the press release was corrected as follows: In the second sentence of the second paragraph of the “Exposure to Counterparties” section, “Banco
Santander S.A. (Spain) (Baa1/P-2)” was changed to “Barclays Bank PLC (A2/P-1)." Revised release follows.
Madrid, October 21, 2014 -- Moody's Investors Service has today upgraded the ratings of four notes,
affirmed the ratings of four notes and confirmed the rating of one note
in three Spanish asset-backed securities transactions: GC
FTPYME Sabadell 4, FTA, GC FTPYME Sabadell 5, FTA and
GC FTPYME Sabadell 6, FTA.
Today's rating action concludes the review of the ratings of 5 notes in
these three transactions placed on review for upgrade on 17 March 2014,
following the upgrade of the Spanish sovereign rating to Baa2 from Baa3
and the resulting increase of the local-currency country ceiling
to A1 from A3 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_292078).
The sovereign rating upgrade reflected improvements in institutional strength
and reduced susceptibility to event risk associated with lower government
liquidity and banking sector risks.
GC FTPYME Sabadell 4, FTA, GC FTPYME Sabadell 5, FTA
and GC FTPYME Sabadell 6, FTA are backed by a pool of loans extended
to small, medium enterprises (SMEs) in Spain. All three transactions
are originated by Banco Sabadell, S.A. ('Sabadell')
(Ba2). While GC FTPYME Sabadell 4, FTA closed in 2005,
GC FTPYME Sabadell 5, FTA and GC FTPYME Sabadell 6, FTA were
originated in 2006 and 2007 respectively.
Please refer to the end of the Ratings Rationale section for a list of
affected ratings.
RATINGS RATIONALE
Today's rating action reflects (1) the increase in the Spanish local-currency
country ceiling to A1 and (2) sufficiency of credit enhancement in the
affected transactions which has increased significantly over the last
12 months.
-- Reduced Sovereign Risk
The Spanish sovereign rating was upgraded to Baa2 in February 2014,
which resulted in an increase in the local-currency country ceiling
to A1. The Spanish country ceiling, and therefore the maximum
rating that Moody's will assign to a domestic Spanish issuer including
structured finance transactions backed by Spanish receivables, is
A1 (sf).
The increase of credit enhancement due to deleveraging combined with the
reduction in sovereign risk has prompted the upgrade of the notes.
Today's confirmations and affirmations reflect the presence of adequate
credit enhancement to address sovereign risk and performance concerns.
New adjustments to Moody's modeling assumptions to account for the effect
of deteriorating performance of the underlying asset portfolios to varying
degrees, affected all of the Spanish SME ABS included in today's
rating action.
-- Key collateral assumptions
Moody's overall market outlook for Spanish ABS and RMBS transactions (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF373727)
is stable. However, in order to reflect increasing defaults
and arrear levels under all three transactions the key collateral assumptions
have been updated as part of this review.
For GC FTPYME Sabadell 4, FTA, outstanding defaults have seen
a strong increase to 19.9% over the last 12 months.
The proportion of loans which are more than 90 days in arrears has also
continuously increased over the last 9 months (currently 8.1%
of the outstanding pool balance). In order to account for this
trend, Moody's has updated its default probability ('DP')
assumption to 20% of current pool balance. The recovery
rate assumption remains unchanged at 55%. Moody's
has also revised its volatility assumption given the reduced country risk.
The revised DP of 20% together with a recovery rate of 55%
and a volatility of 66.0% corresponds to the increased portfolio
credit enhancement of 29.0% which accounts for the high
concentration to the real estate sector (53.1% of current
pool balance). Sensitivity of the ratings to borrower concentration
has been incorporated into the quantitative analysis. In particular,
Moody's considered the credit enhancement coverage of large debtors in
GC FTPYME Sabadell 4 which shows significant exposure to large debtors
(top 1 representing 1.8%, top 10 12.8%,
top 20 21%). The results of this analysis limited the potential
upgrade of the rating of the class B note.
In GC FTPYME Sabadell 5, FTA, outstanding defaults have also
significantly increased to 15.7% during the last 12 months.
However, the level of arrears has remained relatively stable at
low levels. As a consequence, Moody's has updated its
default probability assumption to 16% of current pool balance.
The recovery rate assumption remains unchanged at 50%. Moody's
has also revised its volatility assumption given the reduced country risk.
The revised DP of 20% together with a recovery rate of 55%
and a volatility of 60.4% corresponds to the increased portfolio
credit enhancement of 24.6% which accounts for the high
concentration to the real estate sector (46.2% of current
pool balance).
Compared to its peer transactions, GC FTPYME Sabadell 6, FTA,
reports the highest cumulative default ratio of currently 5.69%
while arrears have remained relatively stable at 5%. In
order to reflect such rising defaults levels, Moody's has
updated its DP to 20% of current pool balance. The recovery
rate assumption remains unchanged at 50%. Moody's
has also revised its volatility assumption given the reduced country risk.
The DP of 20% together with a recovery rate of 50% and a
volatility of 53.2% corresponds to the increased portfolio
credit enhancement of 27.1% which accounts for the high
concentration to the real estate sector (43.9% of current
pool balance).
-- Exposure to Counterparties
Moody's rating analysis also took into consideration the exposure to key
transaction counterparties including the roles of servicer, account
bank and swap provider.
Today's rating action takes into account commingling exposure to
Banco Sabadell (Ba2) for all three transactions. For GC FTPYME
Sabadell 5, FTA and GC FTPYME Sabadell 6, FTA we additionally
assumed strong linkage to Banco Santander S.A. (Spain) (Baa1/P-2)
holding the reserve funds of 4.36% and 2.26%
of the current notes balance. No reserve fund is available anymore
under the GC FTPYME Sabadell 4, FTA. For all three transactions
Barclays Bank PLC (A2/P-1) acts as account bank.
Moody's also assessed the exposure to Banco Sabadell (Ba2) acting
as swap counterparty when revising ratings for all three transactions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Global
Approach to Rating SME Balance Sheet Securitizations" published
in January 2014. 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
include (1) further reduction in sovereign risk, (2) performance
of the underlying collateral that is better than Moody's expected,
(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
include (1) an increase in sovereign risk, (2) performance of the
underlying collateral that is worse than Moody's expects, (3) deterioration
in the notes' available credit enhancement and (4) deterioration in the
credit quality of the transaction counterparties.
LIST OF AFFECTED RATINGS
Issuer: GC FTPYME SABADELL 4, FTA
....EUR162.3M A(G) Notes, Upgraded
to A1 (sf); previously on Mar 17, 2014 A3 (sf) Placed Under
Review for Possible Upgrade
....EUR24M B Notes, Upgraded to Baa1
(sf); previously on Mar 17, 2014 Baa3 (sf) Placed Under Review
for Possible Upgrade
....EUR14.3M C Notes, Affirmed
Caa3 (sf); previously on Apr 18, 2013 Confirmed at Caa3 (sf)
Issuer: GC FTPYME SABADELL 5, FTA
....EUR82.8M A3(G) Notes, Affirmed
A1 (sf); previously on Mar 17, 2014 Upgraded to A1 (sf)
....EUR40M B Notes, Upgraded to A1 (sf);
previously on Mar 17, 2014 Baa2 (sf) Placed Under Review for Possible
Upgrade
....EUR26.9M C Notes, Affirmed
Caa1 (sf); previously on Apr 18, 2013 Upgraded to Caa1 (sf)
Issuer: GC FTPYME SABADELL 6, FTA
....EUR134.1M A3(G) Notes, Upgraded
to A1 (sf); previously on Mar 17, 2014 A3 (sf) Placed Under
Review for Possible Upgrade
....EUR35.5M B Notes, Confirmed
at Ba2 (sf); previously on Mar 17, 2014 Ba2 (sf) Placed Under
Review for Possible Upgrade
....EUR20M C Notes, Affirmed Caa3 (sf);
previously on Apr 18, 2013 Confirmed at Caa3 (sf)
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.
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
As the section on loss and cash flow analysis describes, 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
Andreas Botterbusch
Analyst
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 upgrades 4 notes in three Spanish ABS SME transactions from Banco Sabadell
