London, 04 May 2018 -- 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), and on the liquidity
facility available to this issuer.
....EUR344.1M (current balance EUR
32.7M) Class A Notes, Upgraded to A3; previously on
January 18, 2018 Ba1 (sf) placed on review for upgrade
....EUR0.9M (current balance EUR 0.7M)
Class C Notes , Upgraded to Ba1 (sf); previously on January
18, 2018 B1 (sf) placed on review for upgrade
....Liquidity Facility Notes, Upgraded
to Aa1 (sf); previously on January 18, 2018 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 Cedulas. Each SMICB is backed by a group of Cedulas
which are bought by a Fund, which in turn issues SMICBs.
Cedulas 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
Cedulas). Therefore this transaction is exposed to the risk of
several Spanish financial institutions defaulting under their mortgage
covered bonds (Cedulas).
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 Cedulas, (ii) level of short term EURIBOR and (iii) time
taken for final realization of recoveries on defaulted Cedulas.
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
Moodys said today's rating actions are a result of (i) a recent
change in Spain's long term country ceiling from Aa2 to Aa1,
and (ii) rating actions on several Spanish banking groups as detailed
below:
Kutxabank, S.A. CRA upgraded from Baa1(cr) to A3(cr)
on 17th April 2018
Banca March S.A. CRA upgraded from Baa1(cr) to A3(cr) on
17th April 2018
Banco Sabadell, S.A. CRA upgraded from Baa2(cr) to
Baa1(cr) on 17th April 2018
Banco Bilbao Vizcaya Argentaria, S.A. CRA upgraded
from Baa1(cr) to A3(cr) on 17th April 2018
Bankia, S.A. CRA upgraded from Baa2(cr) to Baa1(cr)
on 17th April 2018
Unicaja Banco CRA upgraded from Baa3(cr) to Baa2(cr) on 19th April 2018
Upgrade to private monitored CRA of one bank in April 2018
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 Cedulas 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 Cedulas 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 consistent with ratings of
A3 (sf) quality.
The credit quality of the reserve funds of these two SMICBs is substantially
driven by high recovery rate assumptions on the underlying Cedulas.
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 Cedulas, (ii) short-term EURIBOR rates and (iii)
time taken for realization of final recoveries on defaulted Cedulas.
Moody's base case scenario assumes that the liquidity facility is
drawn down to the extent of EUR 1.3 million. This level
of draw down reflects (i) some of the current underlying pool of Cedulas
being delinquent or in default, (ii) conservative short-term
EURIBOR at about 1.75% pa, and (iii) a two year period
between Cedulas 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. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The rating of the Liquidity facility is compliant with "Moody's
Approach to Counterparty Instrument Ratings" published in June 2015.
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 Cedulas.
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 did not use any stress scenario simulations in its analysis.
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
