Moody's also affirms ratings on EUR 32.7 m of notes and the liquidity facility of IM Prestamos Fondos Cedulas, FTA
London, 25 September 2017 -- Moody's Investors Service ("Moody's"), announced today that it has
taken rating actions on the following classes of notes issued by IM Prestamos
Fondos Cedulas, FTA ( "IM Prestamos" or the "Issuer"), and
affirmed the liquidity facility available to this Issuer.
....EUR0.9M (Current outstanding balance
of EUR0.7M) Class C Notes, Upgraded to B1 (sf); previously
on Nov 2, 2015 Upgraded to B3 (sf)
....EUR344.1M (Current outstading balance
of EUR32.7M) Class A Notes, Affirmed Ba1 (sf); previously
on Nov 2, 2015 Upgraded to Ba1 (sf)
....Liquidity Facility Notes, Affirmed
Aa2 (sf); previously on Nov 2, 2015 Affirmed Aa2 (sf)
This transaction is a static cash CBO of portions of subordinated loans
funding the reserve funds of two (at closing 14) Spanish multi-issuer
covered bonds (SMICBs), which can be considered as a securitisation
of a pool of Cédulas. Each SMICB is backed by a group of
Cédulas which are bought by a fund, which in turn issues
SMICBs. Cédulas holders are secured by the Issuer's entire
mortgage book. The subordinated loans backing the IM Prestamos
transaction represent the first loss pieces in the respective SMICB structures
(or structured Cédulas). Therefore this transaction is exposed
to the risk of several Spanish financial institutions defaulting under
their mortgage covered bonds (Cédulas).
The liquidity facility may be drawn to fund the difference between interest
accrued and due on the subordinated loans of the two SMICBs and interest
actually received on these loans. The amount drawn under this facility
is thus a function of (i) number and value of underlying delinquent and
defaulted Cédulas, (ii) level of short term EURIBOR and (iii)
time taken for final realization of recoveries on defaulted Cédulas.
While the liquidity facility is currently not drawn, Moody's analysis
assumes that a portion of it will be drawn at some time during the remaining
life of this transaction.
RATINGS RATIONALE:
Moody's said today's rating action is a result of upgrades to the CR Assessments
(CRA) of the following banks:
1) ABANCA Corporacion Bancaria, S.A. CRA upgraded
from Ba3(cr) to Ba1(cr) on 10th May 2017
2) Kutxabank, S.A. CRA upgraded from Baa2(cr) to Baa1(cr)
on 10th May 2017
3) Bankia, S.A. CRA upgraded from Baa3(cr) to Baa2(cr)
on 10th May 2017
4) Ibercaja Banco SA CRA upgraded from Ba2(cr) to Ba1(cr) on 10th May
2017
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_366034
5) Unicaja Banco CRA upgraded from Ba1(cr) to Baa3(cr) on 5th July 2017
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_368968
6) Upgrades of the private monitored CRAs of three banks in second and
third quarters of 2017
As a result, Moody's loss expectations for some of the underlying
covered bonds within the SMICBs have reduced. Moody's considers
that should a Cédulas Issuer default, it is likely that the
reserve funds that form the underlying portfolio of IM Prestamos would
require to be drawn upon to make good the potential shortfall suffered
by the underlying Cédulas holders. The extent of such potential
shortfall is dependent on the level of over collateralisation and quality
of the Issuer's underlying mortgage pool. Moody's analysis indicates
that in the light of such potential shortfalls, the credit quality
of the reserve funds of the two SMICBs that form the portfolio of IM Prestamos
Fondos Cedulas is presently more consistent with ratings in a Ba2 (sf)
-- A3 (sf) range compared to a Ba2 (sf) - Baa2 (sf) range
in May 2016, a B2(sf) - Baa3 (sf) range in June 2015,
a Caa1 (sf) - B1 (sf) range in August 2014, and a Caa2 (sf)
- B2 (sf) range in March 2013.
The credit quality of the reserve funds of these two SMICBs is substantially
driven by high recovery rate assumptions on the underlying Cédulas.
The ratings of the liquidity facility available to IM Prestamos Fondos
Cedulas, FTA and the issued notes are therefore sensitive to these
recovery rate assumptions.
In addition, the credit quality of the liquidity facility is affected
by the estimated level of draw-down, with higher draw-downs
resulting in declining credit quality. As stated earlier,
draw-down is affected by (i) number and value of delinquent and
defaulted Cédulas, (ii) short-term EURIBOR rates and
(iii) time taken for realization of final recoveries on defaulted Cédulas.
Moody's base case scenario assumes that the liquidity facility is drawn
down to the extent of EUR1.3M. This level of draw down reflects
(i) some of the current underlying pool of Cédulas being delinquent
or in default, (ii) conservative short-term EURIBOR at about
1.75% pa, and (iii) a two year period between Cédulas
default and final recoveries.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach
to Rating Corporate Synthetic Collateralized Debt Obligations" published
in August 2017. The rating of the Liquidity facility is compliant
with Moody's Approach to Counterparty Instrument Ratings published in
June 2015. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
A multiple-notch downgrade of classes of notes of IM Prestamos
might occur in certain circumstances, such as (i) a sovereign downgrade
negatively affecting the SMICBs; (ii) a multiple-notch lowering
of the CB anchor or (iii) a material reduction of the value of the cover
pool.
Moody's notes that this transaction is subject to a high level of macroeconomic
uncertainty, which could negatively impact the ratings of the notes
and liquidity facility as evidenced by 1) uncertainties of credit conditions
in the general economy especially as 100% of the portfolio is exposed
to obligors located in Spain 2) fluctuations in EURIBOR and 3) amount
and timing of final recoveries on defaulted Cédulas. Realization
of lower than expected recoveries would negatively impact the ratings
of the notes and the liquidity facility.
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of the rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature
and severity of credit stress on the transactions, may influence
the final rating decision.
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.
In rating this transaction, Moody's CDOROM™ is used to model
the expected loss for each tranche. Moody's CDOROM™ is a
Monte Carlo simulation tool which takes each underlying asset default
probability as input. Each underlying asset default behavior is
then modeled individually with a standard multi-factor model incorporating
both intra- and inter-industry correlation. The correlation
structure is based on a Gaussian copula. Each Monte Carlo scenario
simulates defaults and if applicable, recovery rates, to derive
losses on a portfolio. For a synthetic transaction, the model
then allocates losses to the tranches in reverse order of priority to
derive the loss on the tranches. By repeating this process and
averaging over the number of simulations, Moody's can derive the
expected loss on the tranches. For a cash transaction, the
portfolio loss, or default, distribution produced by Moody's
CDOROM™ may be input into a separate cash flow model in accordance
with its priority of payment to determine each tranche's expected loss.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Raja Iyer
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ian Perrin
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
