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July 11 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says that AyT Cedulas Cajas Global, FTA’s (the programme) fixed rate notes’ ratings will not be affected by the upcoming amortisation of AyT Cedulas Cajas Global, Series XXIV scheduled to take place on 29 July 2014.
The programme is a cash flow securitisation of Spanish mortgage covered bonds (cedulas hipotecarias or CHs) issued by 15 banks (13 banking groups). The fixed rate programme’s current size is EUR21.7bn and the amount to amortise is EUR1.45bn.
While each series of notes issued by the programme is collateralised by a specific pool of CHs, the programme as a whole is protected by two liquidity facilities, one for fixed-rate notes, and another for floating-rate notes. Each liquidity facility is shared by all notes of the same interest rate type. When a series of notes is paid in full, the total amount in the liquidity facilities is reduced by the contribution of that particular series.
Fitch has received information from the SPV management company indicating that the maximum drawable amount under the liquidity facility for the fixed rate notes will be EUR516m after the scheduled amortisation of Series XXIV, down from EUR565m. We consider this amount sufficiently mitigates the liquidity risk that may arise in the notes’ current rating scenario, most of which are rated ‘BBBsf’. Consequently, Fitch believes the amortisation of Series XXIV will not impact the existing ratings of the notes.
We believe obligor concentration is a material risk affecting Multi-Issuer Cedulas Hipotecarias (MICH) transactions as it can impact the expected default rate on the collateral. However, the changes in obligor concentrations at the programme level after the amortisation of Series XXIV do not have any material rating implications, as the average obligor concentration remains the same (7.1%), and the maximum concentration increases marginally to 14.5% from 13.5%. Two banks participating in the fixed rate series of the programme have been upgraded since our last review, and additionally, three banks are benefiting from a two-notch IDR uplift assigned as per Fitch’s rating criteria. Those factors are reducing the default expectation of the fixed rate programme under a ‘BBB’ scenario to 26% from 28.1%. After the amortisation of Series XXIV, 90% of the fixed-rate notes would be collateralised by CHs judged to be rated ‘BBB-‘ or above, and 43.8% by CH judged to be rated ‘BBB+’ or above.
Fitch uses its Portfolio Credit Model (PCM) to analyse the default rate of the CHs. In our analysis, we assumed that the probability of default (PD) of a CH is equal to the PD of the issuing bank with an IDR uplift of one notch, or two notches for systemic banks, and we capture a stressed obligor correlation assumption as all CH issuers belong to the same industry, the banking sector. Once the default rate is calculated for all rating scenarios, to assess the liquidity required at each rating level, Fitch uses the contractual interest rate for the fixed-rate series. Fitch tests liquidity support within the MICH transactions to ensure that the liquidity available provides at least one year’s coverage. The agency believes one year is a reasonable timeframe to redirect cover pool cash flows into an alternative collection agent.
The ratings would be vulnerable to a downgrade if any of the following occurs: i) the IDRs of participating banks are downgraded; ii) the MICH portfolios see increased concentrations as a result of further consolidation in the banking system; or iii) the level of relied upon OC that Fitch takes into account in its analysis falls below the supporting OC levels reported by Fitch in its OC Tracker report.