Frankfurt am Main, November 16, 2012 -- Moody's Investors Service has today downgraded the ratings of nine classes of notes in three Spanish SME ABS transactions (FONCAIXA FTGENCAT 3, FTA, FONCAIXA FTGENCAT 4, FTA and FONCAIXA FTGENCAT 5, FTA) originated by Caixabank (Baa3/P-3) due to insufficient credit enhancement levels. At the same time, Moody's confirmed the ratings of three classes of notes. Today's rating action concludes the review initiated by Moody's on 2 July 2012. A detailed list of affected ratings is available toward the end of this press release.
"We initially placed the notes on review because of the application of the Spanish country ceiling, the need to assess counterparty risk and the reassessment of needed credit enhancement levels, in the context of increased volatility," says Ludovic Thebault, a Moody's analyst and lead analyst for the issuers. "Following our review, today's downgrades reflect insufficient levels of credit enhancement in the notes, given our negative forecast for Spanish SME performance and our severe downside scenarios for performance," adds Mr. Thebault.
As transaction performance and pool characteristics have remained stable since the rating agency's portfolio assumptions revision in June 2012, Moody's has maintained its default assumptions at 13.5%, 11% and 13.4%, respectively, of the portfolio current balance for the respective three transactions.
However, Moody's has decreased its recovery rate assumptions for all three deals to a 55% fixed recovery rate from a 65% stochastic recovery rate. This change reflects the ongoing and increasing difficulty in liquidating the real estate collateral of the loans backed by a mortgage guarantee.
Moody's has also increased volatility levels in its default scenarios for all three transactions. To reflect the instability and deteriorating situation in Spain, the rating agency has increased its volatility assumptions to 90%, 114% and 95%, respectively.
Despite lower recovery and higher volatility expectations for the transactions, Moody's confirmed the ratings of the Class A(G) notes of FONCAIXA FTGENCAT 3, the Class D notes of FONCAIXA FTGENCAT 4 and the Class A(S) notes of FONCAIXA FTGENCAT 5 as credit enhancement levels were sufficient to off-set the lower recovery rate and higher volatility assumptions. In particular, the Class A(S) notes of FONCAIXA FTGENCAT 5 currently represent 6% of the total pool balance and are currently amortising senior to the other tranches. Moody's believes that it is extremely unlikely that the Class A(S) notes will amortise pro rata with the Class A(G) notes, given today's distance to the pro rata trigger and the amortisation speed of the Class A(S) notes
Historically, all three transactions have generally performed better than Moody's Spanish SME delinquency index, and performance has shown signs of stabilisation over the last months. Since the June 2012 review, delinquency levels in all three transactions have remained below the Spanish index. Delinquencies 90+ days now stand at 2.7% of current pool balance in FONCAIXA FTGENCAT 3, 2% in FONCAIXA FTGENCAT 4, and 3% in FONCAIXA FTGENCAT 5, versus 2.9%, 1.9% and 2.7%, respectively, in May 2012.
-- SENSITIVITY ANALYSIS
Moody's analysed various sensitivities of default rate and volatility levels to test the robustness of its revised ratings. In particular, if the revised levels of volatility were to be increased by a further 19% (to 107.5%, 135.6% and 113.1%, respectively), the rating of the senior tranche in each of the three deals would remain unchanged. As such, Moody's analysis encompasses the assessment of stressed scenarios.
-- OPERATIONAL AND COUNTERPARTY RISK
Since Moody's last rating action on 2 July 2012, the issuer accounts were transferred to Barclays Bank PLC (A2/P-1) from Caixabank, but Caixabank (Baa3/P-3) has remained swap counterparty in all three transactions. The swaps provide significant support to the notes by guaranteeing excess spread. A downgrade of Caixabank may negatively affect the ratings of the notes should the bank remain swap counterparty.
On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today's rating action should not be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.
The methodologies used in these ratings were Moody's Approach to Rating CDOs of SMEs in Europe published in February 2007, Refining the ABS SME Approach: Moody's Probability of Default assumptions in the rating analysis of granular Small and Mid-sized Enterprise portfolios in EMEA published in March 2009, and Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa published in June 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Moody's used its excel-based cash flow model, Moody's ABSROM[TM], as part of its quantitative analysis of the transaction. Moody's ABSROM[TM] model enables users to model various features of a standard European ABS transaction including: (i) the specifics of the default distribution of the assets, their portfolio amortisation profile, yield or recoveries; and (ii) the specific priority of payments, triggers, swaps and reserve funds on the liability side of the ABS structure. Moody's ABSROM[TM] User Guide is available on Moody's website and covers the model's functionality as well as providing a comprehensive index of the user inputs and outputs.
Issuer: FONCAIXA FTGENCAT 3 Fondo de Titulización de Activos
....EUR449.3M A(G) Notes, Confirmed at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade
....EUR10.7M B Notes, Downgraded to Ba1 (sf); previously on Jul 2, 2012 A3 (sf) Placed Under Review for Possible Downgrade
....EUR7.8M C Notes, Downgraded to B1 (sf); previously on Jul 2, 2012 Ba2 (sf) Placed Under Review for Possible Downgrade
....EUR6.5M D Notes, Downgraded to Caa1 (sf); previously on Jul 2, 2012 B3 (sf) Placed Under Review for Possible Downgrade
Issuer: FONCAIXA FTGENCAT 4 Fondo de Titulización de Activos
....EUR326M A (G) Notes, Downgraded to Baa1 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade
....EUR9.6M B Notes, Downgraded to Ba3 (sf); previously on Jul 2, 2012 Baa1 (sf) Placed Under Review for Possible Downgrade
....EUR7.2M C Notes, Downgraded to B2 (sf); previously on Jul 2, 2012 Ba2 (sf) Placed Under Review for Possible Downgrade
....EUR6M D Notes, Confirmed at Caa1 (sf); previously on Jul 2, 2012 Caa1 (sf) Placed Under Review for Possible Downgrade
Issuer: FONCAIXA FTGENCAT 5 Fondo de Titulizacion de Activos
....EUR513.1M A (S) Notes, Confirmed at A3 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade
....EUR449.4M A (G) Notes, Downgraded to Baa2 (sf); previously on Jul 2, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade
....EUR21M B Notes, Downgraded to B1 (sf); previously on Jul 2, 2012 Ba1 (sf) Placed Under Review for Possible Downgrade
....EUR16.5M C Notes, Downgraded to Caa1 (sf); previously on Jul 2, 2012 B3 (sf) Placed Under Review for Possible Downgrade
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Ludovic Thebault Analyst Structured Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Carole Gintz VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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