RPT-Fitch Downgrade 2 Tranches of FTPYME TDA CAM 4, FTA; Affirms Others

Mon Jun 9, 2014 7:24am EDT

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June 9 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has downgraded two junior tranches of FTPYME TDA CAM 4, FTA and affirmed the rest, as follows:

EUR94.9m Class A2: affirmed at 'BBBsf''; Outlook revised to Stable from Negative

EUR76.7m Class A3(CA): affirmed at 'BBB+sf' ; Outlook Stable

EUR66m Class B: downgraded to 'CCCsf' from 'Bsf'; RE (Recovery Estimate) 65%

EUR38m Class C: downgraded to 'CCsf' from 'CCCsf'; RE 0%

EUR29.3m Class D: affirmed at 'Csf'; RE 0%

FTPYME TDA CAM 4, FTA is a granular cash flow securitisation of a static portfolio of secured and unsecured loans granted to Spanish small- and medium-sized enterprises (SMEs) by Banco de Sabadell.

KEY RATING DRIVERS

The downgrades are a result of increased defaults in the underlying portfolio of SMEs. Between March 2013 and March 2014, the cumulative level of gross defaults in the portfolio rose to 7.21% of the initial portfolio balance (EUR1.5bn) from 5.59%.

As a result of the increased defaults, the credit enhancement available to the class B notes has fallen to 6.85% from 9.95% during the same period.

Additionally, the transaction includes a deferral trigger for class B interest once cumulative gross defaults rise above 8%. If this trigger is breached, the interest due on the class B notes will rank junior to principal due on the senior notes and will remain unpaid until the principal deficiency ledger (PDL) has been reduced to zero. The PDL balance currently is EUR20.5m.

Credit enhancement on the class C notes has fallen to -8.04% from -1.66% in March 2013. Given the material deterioration in credit protection available to these notes, default is viewed as probable and the notes were downgraded to 'CCsf'.

The rating of the class A2 notes was affirmed as amortisation of the senior notes offset the defaults in the underlying portfolio, with EUR31.6m repaid in the last 12 months. As a result the credit enhancement available to the notes rose to 32.72% from 30.11%. In addition to the growth in credit enhancement, 90 delinquencies in the portfolio (which give an indication of the credit quality of the performing portfolio) fell to 3.32% from 8.31%. As a result, the Outlook was revised to Stable from Negative.

The rating on the class A3(CA) notes is driven by the Kingdom of Spain (BBB+/Stable/F2), which guarantees the ultimate payment of principal and interest on the notes.

The class D notes will be repaid through the proceeds of the reserve fund. As the reserve fund has been depleted and is unlikely to be replenished, the notes were affirmed at 'Csf' as default is viewed as inevitable.

As the transaction's reserve fund has been depleted to zero and the servicer of the underlying SME loans is unrated, the transaction has a material exposure to payment interruption risk. As a result of this, the ratings of the notes have been capped at 'Asf'.

RATING SENSITIVITIES

Applying a 1.25x default rate multiplier or a 0.75x recovery rate multiplier to all assets in the portfolio would result in a downgrade of one notch on the notes.

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