Rating Action Commentary
ֳ Takes Rating Actions on Three AyT Genova Hipotecario RMBS Transactions
Mon 14 Feb, 2022 - 12:30 PM ET
ֳ - Madrid - 14 Feb 2022: ֳ has downgraded two tranches and affirmed 10 tranches of three AyT Genova Hipotecario Spanish RMBS transactions. The Outlook on four tranches has been revised to Stable from Negative and five tranches have been removed from Under Criteria Observation (UCO). A full list of rating actions is below.
Transaction Summary
The transactions are backed by Spanish residential mortgages serviced by CaixaBank, S.A. (BBB+/Stable/F2).
KEY RATING DRIVERS
Criteria Changes, Non-Floored Swap Payments: The downgrade of the class C notes of AyT Genova Hipotecario VIII, FTH (Genova 8) and AyT Genova Hipotecario IX, FTH (Genova 9) follows the application of the updated ֳ's Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (see "ֳ Places 13 EMEA RMBS Ratings UCO; Maintains 3 Ratings UCO") and highlights the notes' vulnerability if negative Euribor persists in the long term. The payments under the transactions' interest rate swap agreements are non-floored and could result in continued negative excess spread. Under these arrangements, the fund pays actual interest received from the performing mortgages, and given the current negative interest rate, it also pays three-month Euribor plus 43bp on the same performing balance.
ֳ has downgraded these notes to a rating different to that suggested by its Multi-Asset Cash Flow Model, reflecting our forward-looking expectations in terms of interest rates and transaction-specific performance. This constitutes a criteria variation from the 'Rating Determination' section of ֳ's European RMBS Rating Criteria, which limits the maximum deviation from the model-implied rating to three notches when the updated analysis is below the current notes' rating. This variation has a maximum positive rating impact of four notches (Genova 9's class C notes).
Rating Cap Due to Counterparty Risks: AyT Genova Hipotecario VI, FTH's (Genova 6) class C notes' rating is capped at the account bank provider's deposit rating (Societé Generale, long-term deposit rating 'A') as the transaction's cash reserve held at this entity represent a material source of credit enhancement (CE) for these notes. The rating cap reflects the excessive counterparty dependence on the SPV account bank holding the cash reserve, as the sudden loss of these funds would result in a downgrade of 10 or more notches, in accordance with ֳ's Structured Finance and Covered Bonds Counterparty Rating Criteria.
Performance Outlook; Additional Stresses Removed: The affirmations and Stable Outlooks on the remaining notes reflect the broadly stable asset performance outlook we have for the securitised portfolios. This is driven by the low share of loans in arrears over 90 days of less than 1% of the current portfolio balance as of the latest reporting periods, and the improved macro-economic outlook for Spain, as described in ֳ's latest Global Economic Outlook dated December 2021.
The rating actions also reflect the removal of the additional stresses in relation to the coronavirus outbreak and legal developments in Catalonia as announced on 22 July 2021 (see "ֳ Retires EMEA RMBS Coronavirus Additional Stress Scenario Analysis, Except UK Non-Conforming", "ֳ Retires Additional Stress Scenario Analysis for Spanish RMBS Linked to Catalonia Decree Law", and "Correction: ֳ Places or Maintains 121 EMEA RMBS Ratings on RWP on Additional Stress Scenario Retirement" at ).
CE Expected to Increase: We expect structural CE to continue increasing in the short term for all transactions, given the prevailing sequential amortisation of the notes and the non-amortising reserve funds, which are below the absolute floor levels. However, CE ratios could decrease if the pro-rata amortisation mechanism is activated with the application of a reverse sequential amortisation of the notes until the target class B, C and D balances as a share of the total notes' balance are met (i.e. tranche thickness targets, defined as double the initial size).
This switch to pro-rata is subject to performance triggers, such as the reserve funds being at their respective target amounts, which could occur if interest rates increase and the swap dynamics presented above revert. A mandatory switch-back to sequential will occur once the portfolio factors reach 10% of its initial balance (currently at around 12%-20%).
Payment Interruption Risk Mitigated: ֳ views the transactions as sufficiently protected against payment interruption risk. In a scenario of servicer disruption, liquidity sources provide a sufficient buffer to cover senior fees, swap payments and interest payment obligations on the senior notes while an alternative servicing arrangement is implemented.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- For Genova 6's class C notes, a downgrade of Societe Generale's long-term deposit rating as it is the SPV account bank provider, and the notes' rating is capped at the bank's rating due to excessive counterparty risk exposure.
- For the junior notes of all transactions, if negative Euribor rates persists in the long term, as the payments under the transactions' respective interest rate swap agreements are non-floored and could result in continued negative excess spread.
- For Genova 6's class A2 and B notes and Genova 8's class A notes, a downgrade of Spain's Long-Term Issuer Default Rating (IDR) that could decrease the maximum achievable rating for Spanish structured finance transactions. This is because these notes are rated at the maximum achievable rating, six notches above the sovereign IDR.
- Long-term asset performance deterioration such as increased delinquencies or larger defaults, which could be driven by changes to macroeconomic conditions, interest rate increases or borrower behaviour.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- For Genova 6's class C notes, an upgrade of Societe Generale's long-term deposit rating as it is the SPV account bank provider, and the notes' rating is capped at the bank's rating due to excessive counterparty risk exposure.
- For the junior notes of all transactions, an increase in Euribor rates will result in positive excess spread, due to swap mechanics, and a replenishment of the reserve funds.
- CE ratios increase as the transactions deleverage able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios, in addition to adequate counterparty arrangements.
- Genova 6's class A2 and B notes and Genova 8's class A notes are rated at the highest level on ֳ's scale and cannot be upgraded.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.
CRITERIA VARIATION
ֳ has downgraded the class C notes of Genova 8 and Genova 9 to a rating different to that suggested by its Multi-Asset Cash Flow Model. This rating action constitutes a criteria variation from the 'Rating Determination' section of ֳ's European RMBS Rating Criteria, which limits the maximum deviation from the model-implied rating to three notches when the updated analysis is below the current note rating.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, ֳ in relation to this rating action.
DATA ADEQUACY
AyT Genova Hipotecario VI, FTH, AyT Genova Hipotecario VIII, FTH, AyT Genova Hipotecario IX, FTH
ֳ has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. ֳ 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 transaction's AyT Genova Hipotecario VI, FTH, AyT Genova Hipotecario VIII, FTH, AyT Genova Hipotecario IX, FTH 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, and together with any assumptions referred to above, ֳ'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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Genova 6's class C notes' rating is capped at the account bank provider's deposit rating, as the transactions' cash reserves held at this entity represent a material source of CE for these notes.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ֳ's ESG Relevance Scores, visit
Additional information is available on
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.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| AyT Genova Hipotecario IX, FTH | EU Issued, UK Endorsed |
| AyT Genova Hipotecario VI, FTH | EU Issued, UK Endorsed |
| AyT Genova Hipotecario VIII, FTH | EU Issued, UK Endorsed |