ֳ

Rating Action Commentary

ֳ Takes Multiple Rating Actions on 2 Spanish RMBS

Mon 04 Dec, 2017 - 12:08 PM ET

ֳ-Madrid-04 December 2017: ֳ has affirmed three tranches and upgraded one tranche of AyT CGH Caja Cantabria I Spanish RMBS. The agency has also affirmed three tranches of Caixa Penedes 1 RMBS. All ratings have been removed from Rating Watch Evolving (RWE). A full list of rating actions follows at the end of this ratings action commentary.

These transactions comprise Spanish residential mortgage loans serviced by Liberbank, S.A. (BB/Stable/B) for AyT CGH Caja Cantabria I (Cantabria I) and Banco Mare Nostrum S.A. (BB/RWP/B) for Caixa Penedes 1 (Penedes 1).

KEY RATING DRIVERS

Stable or Improving Credit Enhancement (CE)
ֳ expects structural CE to remain stable over the short- to medium-term for Penedes 1 as this transaction will continue paying pro rata. For Cantabria I, we expect CE to rise, especially for the senior notes, as this transaction is amortising sequentially. The agency views these CE trends as sufficient to withstand the rating stresses, leading to today's rating actions.

Stable Asset Performance
The transactions continue to show sound asset performance. Three-month plus arrears (excluding defaults) as a percentage of the current pool balance stood at 0.3% for Penedes 1 and 0.7% for Cantabria I as of the last reporting period. Cumulative defaults relative to the original portfolio balances stood at 3.4% and 3.8% for Penedes 1 and Cantabria I respectively. ֳ expects performance to remain stable especially given the significant seasoning of the securitised portfolios of between nine and 11 years.

Payment Interruption Risk
Cantabria I's class A and B notes' ratings are capped at 'A-sf', five notches above the rating of the collection account bank Liberbank, as the transaction is exposed to payment interruption risk in the event of servicer disruption. While the transaction operates a dedicated and dynamic cash reserve to mitigate this risk, ֳ views this reserve insufficient as it does not account for replacement servicer fees or net swap payments, and potential top-ups associated with higher interest rate scenarios depend on Liberbank's financial ability to implement such measures.

Partly Unhedged Transaction
The ratings on Penedes 1 reflect the open fixed-floating interest rate risk affecting 33.7% of the portfolio, which is particularly intense under a rising interest rate scenario. The securitisation notes pay a floating coupon rate linked to three-month Euribor while 33.7% of the underlying mortgages pay a fixed interest rate. The reminder of the mortgage portfolio pays floating rate coupons and the basis risk is mitigated by a hedging agreement.

ֳ views available and projected CE ratios on the notes, together with the positive net margin available from floating-rate mortgages that pay the IRPH Spanish index, as sufficient to compensate for this risk and therefore substantiating the affirmation of the notes.

Geographical Concentration
Both transactions are exposed to significant regional concentration risk, as 80.6% of Cantabria I portfolio is located in the region of Cantabria and 98.6% of Penedes 1 in Catalonia. As per the agency rating criteria, ֳ has applied a higher set of rating multiples to the base foreclosure frequency assumption to the portion of the portfolio that exceeds twice and a half times the population within these regions.

RATING SENSITIVITIES
If payment interruption risk is fully mitigated in Cantabria I, the class A and B notes could be upgraded to 'AA+sf' and 'A+sf' respectively, all else being equal. As long as the payment interruption risk is not fully mitigated, the ratings on the class A and B notes are capped at five notches above the rating of Liberbank as collection account bank. Consequently, changes to Liberbank rating will result in a corresponding rating impact on the notes.

A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift of interest rates could jeopardise the underlying borrowers' affordability. This could have negative rating implications, especially for junior tranches that are less protected by structural CE.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, ֳ in relation to this rating action.

DATA ADEQUACY
ֳ has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. ֳ has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

ֳ did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and ֳ is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, ֳ's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
Loan level data sourced from the European Data Warehouse with the following cut-off dates:
-September 2017 for Cantabria I
-June 2017 for Penedes 1

Issuer and servicer reports provided by Haya Titulizacion, SGFT, SA and Titulizacion de Activos, SGFT, SA since close and until:
-September 2017 for Cantabria I
-October 2017 for Penedes 1

MODELS

ResiEMEA.
EMEA Cash Flow Model.

The rating actions are as follows:

AyT CGH Caja Cantabria I:
Class A notes (ISIN ES0312273446): affirmed at 'A-sf'; off RWE; Outlook Stable
Class B notes (ISIN ES0312273453): upgraded to 'A-sf' from 'BBB+sf'; off RWE; Outlook Stable
Class C notes (ISIN ES0312273461): affirmed at 'B+sf'; off RWE; Outlook Stable
Class D notes (ISIN ES0312273479): affirmed at 'CCCsf'; off RWE; Recovery Estimate (RE) revised to 60% from 90%

Caixa Penedes 1 TDA, FTA:
Class A (ISIN ES0313252001): affirmed at 'A+sf'; off RWE; Outlook Stable
Class B (ISIN ES0313252019): affirmed at 'BBBsf'; off RWE; Outlook Stable
Class C (ISIN ES0313252027) affirmed at 'BBsf'; off RWE; Outlook Stable

Contacts:
Lead Surveillance Analyst
Ricardo Garcia
Associate Director
+34 917 025 772
ֳ Espana, S.A.
Plaza de Colon 2, Torre II, planta 5
Madrid, 28046

Committee Chairperson
Juan David Garcia
Senior Director
+34 917 025 774

Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com.

Additional information is available on

Applicable Criteria
European RMBS Rating Criteria (pub. 27 Oct 2017)
Global Structured Finance Rating Criteria (pub. 03 May 2017)
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 23 May 2017)
Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum (pub. 23 May 2017)
Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 18 Sep 2017)
Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub. 17 Feb 2017)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy


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PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

Solicitation Status

The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

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