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Rating Action:

Moody's upgrades EUR 70.5m notes of IM Prestamos Fondos Cedulas, FTA

02 Nov 2015

Moody's also affirms the liquidity facility of IM Prestamos Fondos Cedulas, FTA

London, 02 November 2015 -- Moody's Investors Service announced today that it has upgraded the following classes of notes issued by IM Prestamos Fondos Cedulas, FTA (IM Prestamos), and affirmed the liquidity facility available to this issuer:

....EUR344.1M (currently EUR 68.9M outstanding) Class A Notes, Upgraded to Ba1 (sf); previously on Jun 22, 2015 Upgraded to Ba2 (sf)

....EUR6.9M (currently EUR 0.66M outstanding) Class B Notes, Upgraded to B1 (sf); previously on Jun 22, 2015 Upgraded to B3 (sf)

....EUR0.9M Class C Notes, Upgraded to B3 (sf); previously on Jun 22, 2015 Upgraded to Caa1 (sf)

....Liquidity Facility Notes, Affirmed Aa2 (sf); previously on Jun 22, 2015 Upgraded to Aa2 (sf)

This transaction is a static cash CBO of portions of subordinated loans funding the reserve funds of three (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 three 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 the upgrades to two of the three SMICBs whose reserve funds make up the IM Prestamos portfolio. For more detail please refer to:

https://www.moodys.com/research/Moodys-upgrades-23-Spanish-multicedulas--PR_337504.

As a result, Moody's loss expectations for the majority of underlying covered bonds within the SMICBs have reduced significantly. 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 3 SMICBs that form the portfolio of IM Préstamos Fondos Cédulas is presently more consistent with ratings in a Ba2 (sf) - Baa3 (sf) compared to 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 3 SMICBs is substantially driven by high recovery rate assumptions on the underlying Cédulas. The ratings of the liquidity facility available to IM Préstamos Fondos Cédulas, 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 EUR 2 million. This level of draw down reflects (i) some of the current underlying pool of Cédulas being delinquent or in default, (ii) ongoing short-term EURIBOR at about two times current levels, and (iii) a two year period between Cédulas default and final recoveries.

The rating of the Liquidity facility is compliant with Moody's Approach to Counterparty Instrument Ratings published in June 2015.

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 September 2015. 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 rating:

In addition to the base case run, Moody's undertook a number of sensitivity runs assuming higher draw down amounts for the liquidity facility. The model output for an EUR 4 million draw down was the same as the base case result.

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 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.

Hemal Shah
Asst Vice President - 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

Ian Perrin
Associate Managing Director
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 upgrades EUR 70.5m notes of IM Prestamos Fondos Cedulas, FTA
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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