Various Rating Actions Taken In Spanish RMBS Transactions AyT Genova Hipotecario IX And X Following Review

Stocks and Financial Services Press Releases Wednesday July 4, 2018 17:35
LONDON--4 Jul--S&P Global Ratings

LONDON (S&P Global Ratings) July 4, 2018--S&P Global Ratings today took various credit rating actions in two Spanish residential mortgage-backed securities (RMBS) transactions, AyT Genova Hipotecario IX Fondo de Titulizacion Hipotecaria and AyT Genova Hipotecario X Fondo de Titulizacion Hipotecaria (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 transactions' 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 these transactions 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 these transactions is six notches above the sovereign rating on Spain, 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.

Following the sovereign upgrade, on April 6, 2018, we raised to 'A' from 'A-' our long-term issuer credit rating (ICR) on Banco Santander S.A., which is the swap provider in these transactions. We also raised to 'BBB+' from 'BBB' our long-term ICR on CaixaBank S.A., which is the bank account provider in Genova Hipotecario X (see "Reduced Funding Risks Lead To Upgrades At Several Spanish Banks").

Considering the remedial actions defined in the swap agreements, and the current ICR on Banco Santander, the maximum rating on the notes is not constrained according to our counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). However in AyT Genova Hipotecario X, the downgrade language in the transaction account provider documents stipulates that the bank account provider (Caixabank; BBB+/Stable/A-2) has to put in place remedies, in line with our current counterparty criteria, to support a minimum rating of 'A- (sf)' on the notes.

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).

GENOVA IX
The application of our European residential loans criteria resulted in the following weighted-average foreclosure frequency (WAFF) and weighted-average loss severity (WALS) assumptions:
Rating level WAFF (%) WALS (%)
AAA 8.46 15.21
AA 5.80 11.03
A 4.40 5.24
BBB 3.26 2.78
BB 2.16 2.00
B 1.31 2.00

The class A2, B, C, and D notes' credit enhancement is 8.5%, 6.3%, 4.1%, and 2.0%, respectively, and it has been stable since our previous review due to the pro rata amortization of the notes. The reserve fund is amortizing and is at its required level.

The transaction has performed in line with our expectations and arrears have always been lower than our Spanish RMBS index (see "Spanish RMBS Index Report Q1 2018," published on May 24, 2018). Cumulative defaults, which stand at 1.1% of the original pool balance, are also lower than other Spanish RMBS transactions that we rate. The collateral's strong quality is due to the strong underwriting procedures for granted mortgage loans with a weighted-average original loan-to-value (LTV) ratio that is lower than other Spanish mortgage lenders.

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.

Taking into account the results of our updated credit and cash flow analysis, we consider the available credit enhancement for the class A2 notes to be commensurate with a higher rating than previously assigned. We have therefore raised to 'AAA (sf)' from 'AA+ (sf)' and removed from CreditWatch positive our rating on this class of notes.

We consider the available credit enhancement for the class B and C notes to be commensurate with higher ratings than previously assigned. We have therefore raised to 'A+ (sf)' from 'BBB+ (sf)' and removed from CreditWatch positive our rating on the class B notes. We have also raised to 'BBB+ (sf)' from 'BB+ (sf)' and removed from CreditWatch positive our rating on the class C notes. The upgrades are lower than the ratings indicated by our cash flow results as we take into account the fact the credit enhancement has not increased since our previous review because of the pro rata priority of payments, the amortizing reserve fund, and the lack of excess spread.

Credit enhancement has remained stable for the class D notes due to the pro-rata priority of payments. This class did not pass our cash flow analysis at any rating level. Following the application of our criteria and guidance for assigning 'CCC' category ratings, we believe that payments on this class of notes do not depend upon favorable financial and economic conditions (see " Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012 and "Criteria Guidance: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Jan. 18, 2018). We have therefore affirmed and removed from CreditWatch positive our 'B (sf)' rating on the class D notes.

GENOVA X
The application of our European residential loans criteria resulted in the following WAFF and WALS assumptions:
Rating level WAFF (%) WALS (%)
AAA 7.74 14.80
AA 5.29 10.80
A 4.04 5.49
BBB 3.01 3.27
BB 2.01 2.07
B 1.25 2.00

The class A2, B, C, and D notes' credit enhancement is 13.0%, 9.0%, 6.0%, and 2.2%, respectively, and it has increased since our previous review thanks to structural deleveraging. The transaction pays sequentially as the reserve fund is below its required level.

The transaction has performed in line with our expectations and arrears have always been lower than our Spanish RMBS index, but slightly worse than other, more seasoned Genova transactions. Cumulative defaults, which stand at 1.5% of the original pool balance, are also lower than other Spanish RMBS transactions that we rate. The collateral's strong quality is due to the strong underwriting procedures for granted mortgage loans with a weighted-average original LTV ratio that is lower than other Spanish mortgage lenders.

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 cash flow results indicate that the class A2, B, and C notes can attain higher ratings than those previously assigned. As mentioned above, the ratings in this transaction are capped at 'A- (sf)' because of the downgrade language established in the transaction account documentation. We have therefore affirmed our 'A- (sf)' ratings on the class A2 and B notes. We have also raised to 'A- (sf)' from 'BBB+ (sf)' and removed from CreditWatch positive our rating on the class C notes.

Credit enhancement has risen for the class D notes due to the sequential priority of payments. This class did not pass our cash flow analysis at any rating level. Following the application of our criteria, and considering that the reserve fund is not at its required level, the lower observed actual recoveries than the one prevailing in Genova Hipotecario IX, and our guidance for assigning 'CCC' category ratings, we believe that payments on this class of notes do not depend upon favorable financial and economic conditions. We have therefore affirmed and removed from CreditWatch positive our 'B- (sf)' rating on the class D notes.

AyT Genova Hipotecario IX and X are Spanish RMBS transactions that closed in December 2006 and June 2007, respectively.

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