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Rating Action:

Moody's upgrades 4 notes in three Spanish ABS SME transactions from Banco Sabadell

21 Oct 2014

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

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