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TEXT-S&P afrms rtgs in Spanish RMBS deals MADRID RESIDENCIAL I, II
December 21, 2012 / 11:26 AM / 5 years ago

TEXT-S&P afrms rtgs in Spanish RMBS deals MADRID RESIDENCIAL I, II

(The following statement was released by the rating agency)

Dec 21 -

OVERVIEW

-- On Nov. 5, 2012, we lowered and placed on CreditWatch negative our ratings on MADRID RESIDENCIAL I and MADRID RESIDENCIAL II’s class A notes, following our Oct. 15, rating actions on counterparties for these transactions.

-- The counterparties, Banco Santander as bank account provider and Banco Bilbao Vizcaya Argentaria as swap provider, have taken remedy actions and the documents now comply with our 2012 counterparty criteria.

-- We have today reviewed these transactions, including a cash flow analysis without giving benefit to the swap. Following our analysis, we have affirmed and removed from CreditWatch negative our ‘A (sf)’ ratings on the class A notes in both transactions.

-- MADRID RESIDENCIAL I and MADRID RESIDENCIAL II are Spanish RMBS transactions securitizing loans to Spanish residents to acquire residential properties. Bankia (formerly Caja Madrid) originated and services the loans in both portfolios. Both transactions also have a junior tranche of notes called Loan B, which we do not rate.

Standard & Poor’s Ratings Services today affirmed and removed from CreditWatch negative its ‘A (sf)’ credit ratings on MADRID RESIDENCIAL I, Fondo de Titulizacion de Activos’ and MADRID RESIDENCIAL II, Fondo de Titulizacion de Activos’ class A notes.

Each transaction securitizes a portfolio of secured loans to Spanish residents to acquire residential properties. Bankia S.A. (formerly Caja Madrid) originated and services the loans in both portfolios. As with other Spanish transactions, interest and principal are combined into a single priority of payments.

On Nov. 5, 2012, we lowered and placed on CreditWatch negative our ratings on MADRID RESIDENCIAL I and MADRID RESIDENCIAL II’s class A notes, following our Oct. 15 rating actions on counterparties for these transactions (see “Various Rating Actions On Spanish Financial Institutions Following Sovereign Downgrade” and “Rating Actions Taken In Seven Of Bankia’s Spanish RMBS Transactions Following Rating Actions On Counterparties”).

Banco Santander S.A. (BBB/Negative/A-2) as bank account provider and Banco Bilbao Vizcaya Argentaria S.A. (BBVA; BBB-/Negative/A-3) as swap provider, have taken remedy actions and the documents now comply with our 2012 counterparty criteria (see “Counterparty Risk Framework Methodology And Assumptions,” published on Nov. 29, 2012).

Following the remedy actions relating to Banco Santander as bank account provider, new downgrade language in the documents sets the remedy actions trigger upon the loss of a ‘BBB’ long-term rating. Therefore, under our 2012 counterparty criteria, while giving benefit to the bank account provider, the maximum achievable rating in these transactions is ‘A (sf)'.

Our Nov. 5, 2012 CreditWatch negative placements in these two transactions were due to the remedy actions to be taken in relation to the swap provider. The swap documents have been modified in order to comply with our 2012 counterparty criteria. BBVA remains as the swap provider and has posted collateral in an eligible account. Therefore, under our 2012 counterparty criteria, while giving benefit to the swap provider, the maximum achievable rating in these transactions is ‘A- (sf)'.

MADRID RESIDENCIAL I

On the latest payment date in November 2012, the cash reserve was not at its required level. The actual reserve fund represents 92.21% of the required amount (10% of the initial balance of the notes).

Over the last two years, delinquencies of 30 to 90 days have been stable. During the past year, arrears of 90+ days up to default have doubled. As of the latest payment date, the outstanding balance of defaults (net of recoveries) of the initial balance of the pool was 2.46%. Interest on the Loan B (a junior tranche of notes that we do not rate) can be deferred if cumulative defaults (net of recoveries) represent more than 12% of the initial balance of the assets. If defaults continue to rise at the same rate for the next year, the transaction will not hit its interest-deferral trigger over that period.

Our Nov. 5, 2012 downgrade and CreditWatch placement was due to the counterparty exposure and was in spite of the transaction’s fairly stable performance for the past year and the increased credit enhancement available for the class A notes.

As the swap documentation supports a maximum rating of only ‘A- (sf)', we have performed our analysis without giving benefit to the swap counterparty and the notes pass at a ‘AAA (sf)’ rating level. However, as the bank account exposure constrains the rating to ‘A (sf)', we have today affirmed and removed from CreditWatch negative our ‘A (sf)’ rating on the class A notes.

MADRID RESIDENCIAL II

On the latest payment date in November 2012, the cash reserve represented 95.79% of its required balance. Although it is not at its required level (10% of the initial balance of the notes), the level of credit enhancement is higher than at closing.

Over the last two years, delinquencies of 30 to 90 days have been stable. During the past year, arrears of 90+ days up to default have increased by only 0.65% of the outstanding balance of the pool. As of the latest payment date, the outstanding balance of defaults (net of recoveries) of the initial balance of the pool was 0.97%. Interest on the Loan B (a junior tranche of notes that we do not rate) can be deferred if cumulative defaults (net of recoveries) represent more than 9.95% of the initial balance of the assets. If defaults continue to rise at the same rate for the next year, the transaction will not hit its interest-deferral trigger over that period.

Our Nov. 5, 2012 downgrade and CreditWatch placement was due to the counterparty exposure and was in spite of the transaction’s fairly stable performance for the past year and the increased credit enhancement available for the class A notes.

As the swap documentation supports a maximum rating of only ‘A- (sf)', we have performed our analysis without giving benefit to the swap counterparty and the notes pass at a ‘AA- (sf)’ rating level. However, as the bank account exposure constrains the rating to ‘A (sf)', we have today affirmed and removed from CreditWatch negative our ‘A (sf)’ rating on the class A notes.

RELATED CRITERIA AND RESEARCH

Related Criteria

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Methodology And Assumptions: Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009

-- Methodology And Assumptions: Update To The Criteria For Rating Spanish Residential Mortgage-Backed Securities, Jan. 6, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- Criteria for Rating Spanish Residential Mortgage-Backed Securities, March 1, 2002

Related Research

-- Rating Actions Taken In Seven Of Bankia’s Spanish RMBS Transactions Following Rating Actions On Counterparties, Nov. 5, 2012

-- Various Rating Actions On Spanish Financial Institutions Following Sovereign Downgrade. Oct. 15, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- Spanish RMBS Index Reports, published quarterly

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