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April 29 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed four tranches of TDA 29, FTA, a Spanish prime RMBS transaction comprising loans originated and serviced by Banca March and Banco de Sabadell.
A full list of rating actions is at the end of this commentary.
Cumulative Defaults on the Rise
Performance of the collateral has deteriorated sharply over the past 12 months with gross cumulative defaults rising to 3.9% of the initial collateral balance from 2.87%. This level of defaults, however, is still below the average (4.34%) for other Fitch-rated Spanish RMBS. The weaker asset performance has prevented class A notes from gaining additional credit enhancement through deleveraging, while reducing the class B and C credit enhancement.
Nevertheless, available and projected levels of credit enhancement are sufficient to withstand the credit losses at their rating levels.
Principal Deficiency to Increase
Fitch expects the balance of un-provisioned defaults to increase over the next 12 months as late stage arrears migrate into defaults and also due to likely low recoveries on the cumulative defaults amid a weak Spanish residential property market. The agency notes that recovery cash flows obtained to date have not been from the sale of repossessed properties. These factors underline the Negative Outlooks on the class A and B notes and the 0% recovery estimate on the class C and D notes.
The transaction’s structure allows for the full provisioning of defaulted loans, which are defined as loans in arrears for more than 12 months. Because gross excess spread (0.54% per annum as of the latest payment date) and recoveries on defaulted loans have been insufficient to fully cover period defaults, the reserve fund has been depleted for over a year, and the balance of un-provisioned defaults has accumulated to 0.77% of the current note balance.
Payment Interruption and Commingling Risks
Fitch believes the transaction is exposed to payment interruption and commingling risks in the event of a servicer disruption. Under a servicer default scenario, Fitch views the liquidity available in the transaction as insufficient to fully cover senior fees, net swap payments and senior note interest due amounts for at least one or two interest payment dates, and additionally commingling losses could be crystallised because collection banks (Banca March and Banco de Sabadell) retain those monies for one week before transferring them to the SPV bank account banks, Barclays Bank plc (A/Stable/F1) and BNP Paribas (A+/Stable/F1) Spanish branches.
Deterioration in asset performance may result from economic factors, in particular the increasing effects of unemployment. An increase in new defaults and associated pressure on excess spread levels and reserve funds beyond Fitch’s expectations could result in negative rating actions.
The rating actions are as follows:
Class A2 (ES0377931011) affirmed at ‘BBBsf’ ; Outlook Negative
Class B (ES0377931029) affirmed at ‘Bsf’; Outlook Negative
Class C (ES0377931037) affirmed at ‘CCCsf’; Recovery Estimate 0%
Class D (ES0377931045) affirmed at ‘CCsf’; Recovery Estimate 0%