Various Rating Actions Taken In Spanish RMBS Transaction Hipocat 10 Following Review

Stocks and Financial Services Press Releases Thursday June 21, 2018 18:52
MADRID--21 Jun--S&P Global Ratings

MADRID (S&P Global Ratings) June 21, 2018--S&P Global Ratings today raised and removed from CreditWatch positive its credit ratings on Hipocat 10, Fondo de Titulizacion de Activos' class A2 and A3 notes. At the same time, we affirmed our ratings on the class B, C, and D notes (see list below).

Today's rating actions follow the application of our relevant criteria and our full analysis of the most recent transaction information that we have received, and reflect the transaction's current structural features (see "Related Criteria"). We have also considered our updated outlook assumptions for the Spanish residential mortgage market (see "Outlook Assumptions For The Spanish Residential Mortgage Market," published on April 17, 2018).

Our structured finance ratings above the sovereign (RAS) criteria classify the sensitivity of this transaction as moderate (see "Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions," published on Aug. 8, 2016). Therefore, after our March 23, 2018, upgrade of Spain to 'A-' from 'BBB+', the highest rating that we can assign to the senior-most tranche in this transaction is six notches above the Spanish sovereign rating, or 'AAA (sf)', if certain conditions are met (see "Spain Long-Term Ratings Raised To 'A-' On Economic Growth And Budgetary Consolidation; Outlook Positive"). For all the other tranches, the highest rating that we can assign is four notches above the sovereign rating.

Our European residential loans criteria, as applicable to Spanish residential loans, establish how our loan-level analysis incorporates our current opinion of the local market outlook (see "Methodology And Assumptions: Assessing Pools Of European Residential Loans," published on Aug. 4, 2017). Our current outlook for the Spanish housing and mortgage markets, as well as for the overall economy in Spain, is benign. Therefore, we revised our expected level of losses for an archetypal Spanish residential pool at the 'B' rating level to 0.9% from 1.6%, in line with table 87 of our European residential loans criteria, by lowering our foreclosure frequency assumption to 2.00% from 3.33% for the archetypal pool at the 'B' rating level (see "Guidance: Methodology And Assumptions: Assessing Pools Of European Residential Loans," published on April 17, 2018).

After applying our European residential loans criteria to this transaction, the overall effect on our credit analysis results is a decrease in the required credit coverage for 'AA' to 'B' rating levels compared with our previous review, mainly driven by our revised foreclosure frequency assumptions. The credit coverage for 'AAA' rating level has increased in comparison with the previous review due to the increase in 'AAA' repossession market value decline (RMVD).

WAFF--Weighted average foreclosure frequency. WALS--Weighted average loss severity.

Credit enhancement available in Hipocat 10 has increased since the previous review as the amortization deficit--i.e., the difference between accrued and paid principal--has decreased. As of July 2017, the amortization deficit was EUR74.60 million. That fell to EUR49.51 million in April 2018. The reserve fund has been fully depleted since July 2010 as it was used to provision for loans in foreclosure and in arrears over 18 months. In November, the servicer, Banco Bilbao Vizcaya Argentaria (BBVA), acquired around EUR7.61 million of repossessed properties from the fund. Cash flows from the sale of these properties contributed to the decrease in the amortization deficit. In addition, according to the trustee, during 2017, recoveries from defaulted assets contributed to narrowing the gap between assets and liabilities in this transaction.

Following the application of our criteria, we have determined that our assigned ratings on the classes of notes in this transaction should be the lower of (i) the rating as capped by our RAS criteria, (ii) the rating as capped by our counterparty criteria, or (iii) the rating that the class of notes can attain under our European residential loans criteria.

Our ratings on the class A2 and A3 notes are not capped by our RAS analysis as the application of our European residential loans criteria, including our updated credit figures, determine our ratings on these classes at 'BBB (sf)'. We have therefore raised to 'BBB (sf)' from 'BB+ (sf)' and removed from CreditWatch positive our ratings on the class A2 and A3 notes. In reviewing these ratings, in addition to applying our credit and cash flow analysis which considered various recovery assumptions for the defaulted assets, we have considered their sensitivity to the various recovery assumptions and the scope of the improvement in credit enhancement since the last review.

The class B and C notes continue to experience ongoing interest shortfalls because of interest deferral trigger breaches and lack of excess spread in the transaction. Class D, which is non-asset backed, also has interest shortfalls due to lack of excess spread. Our ratings in Hipocat 10 address the timely payment of interest and ultimate principal during the transaction's life (see " General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings," published on Oct. 24, 2013). We have therefore affirmed our 'D (sf)' ratings on the class B, C, and D notes.

Hipocat 10 is a Spanish residential mortgage-backed securities (RMBS) transaction that closed in July 2006 and securitizes first-ranking mortgage credits. Catalunya Banc, which was formerly named Caixa Catalunya and is now part of BBVA, originated the pool. The pool comprises credits secured over owner-occupied properties, mainly in Catalonia.


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