Various Rating Actions Taken In Spanish RMBS Transaction IM Pastor 3 And 4 Following Review

Stocks and Financial Services Press Releases Tuesday July 3, 2018 18:00
LONDON--3 Jul--S&P Global Ratings

LONDON (S&P Global Ratings) July 3, 2018--S&P Global Ratings today affirmed and removed from CreditWatch positive its credit ratings on the class A notes in IM PASTOR 3, Fondo de Titulizacion Hipotecaria and IM PASTOR 4, Fondo de Titulizacion de Activos. At the same time, we lowered our ratings on the class B and C notes and affirmed our ratings on the class D notes in both transactions (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 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 in our credit analysis results is a decrease in the weighted-average foreclosure frequency (WAFF) at all rating levels in both transactions compared with our previous review (see "Ratings Lowered In Spanish RMBS Transactions IM PASTOR 3 And 4 On Lower Credit Enhancement And Criteria Application," published on Feb. 17, 2015). This is mainly driven by the increase in seasoning, the decrease in arrears, and our revised foreclosure frequency assumptions. Additionally, our weighted-average loss severity (WALS) assumptions have decreased at all rating levels compared with our previous review, mainly driven by the decrease in weighted-average current loan-to-value ratio following the portfolios' amortization.

Since our previous review, the available credit enhancement for all classes of notes in both transactions has decreased and remains negative. This is explained by the amortization deficit of the notes in both transactions. As of June 2018, the amortization deficits of the notes are EUR50.35 million in IM Pastor 3 and EUR39.50 million in IM Pastor 4.

Following the application of our criteria, we have determined that our assigned ratings on the classes of notes in these transactions should be the lower of (i) the rating as capped by our structured finance ratings above the sovereign (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 European residential loans criteria, reflecting our updated credit figures, indicates that the available credit enhancement for the class A notes in both transactions does not pass our cash flow stress test at the 'B' rating level. Although we consider these notes to be vulnerable to ultimate principal nonpayments (at legal maturity) given their undercollateralization, we do not expect this to happen in the short term. Given their seniority in the capital structure, they could benefit faster than other classes of notes from any collateral improvement. In line with our European residential loans criteria and our 'CCC' criteria, we have affirmed and removed from CreditWatch positive our 'B- (sf)' ratings on the class A notes in both transactions (see "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012). Our RAS criteria do not constrain the ratings on the notes.

We consider the class B and C notes to be vulnerable to interest shortfalls and ultimate principal nonpayments. They also depend on favorable business and economic conditions (for example, an improvement in the observed recoveries over defaulted loans to meet their obligations). However, we do not consider the interest shortfalls under these classes of notes to be a virtual certainty. Given the decrease in credit enhancement since our previous review and in line with our 'CCC' criteria, we have lowered to 'CCC- (sf)' from 'CCC (sf)' our ratings on the class B and C notes in both transactions. Our RAS criteria do not constrain the ratings on these classes of notes.

We consider the ongoing liquidity shortfalls for the class D notes in both transactions to be commensurate with our currently assigned ratings. We have therefore affirmed our 'D (sf)' ratings on the class D notes in both transactions.

IM PASTOR 3 and IM PASTOR 4 are Spanish residential mortgage-backed security (RMBS) transactions, which closed in June 2005 and June 2006, respectively, and securitize first-ranking mortgage loans. Banco Pastor (now Banco Popular Espanol, part of Banco Santander) originated both pools, which comprise loans granted to prime borrowers, mainly in Catalonia.


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