DBRS Assigns AAA (sf) Provisional Rating to Series A Notes issued by BBVA EMPRESAS 2, F.T.A.

DBRS Ratings Limited (“DBRS”) has today assigned the provisional rating of AAA (sf) to the EUR 934,089,333.12 Series A Notes (the “Notes”) issued by BBVA EMPRESAS 2, F.T.A. (the “Issuer”). The transaction is a cash flow securitization collateralised by a portfolio of bank loans originated by Banco Bilbao Vizcaya Argentaria S.A. (“BBVA”) to Spanish corporates and small and medium-sized enterprises (“SMEs”). As of 31 August 2011, the transaction had a performing notional amount of EUR 1,282 million and included 8,173 loans with a weighted average time to maturity of 3.49 years.

The transaction is an existing transaction that had its Constitution Date on 9 March 2009.

The above rating is provisional. The final rating will be issued upon receipt of executed versions of the amended governing transaction documents. To the extent that the documents and information provided by BBVA EMPRESAS 2, F.T.A., Europea de Titulización S.A., S.G.F.T., BBVA and/or their agents to DBRS as of this date differ from the executed versions of the governing transaction documents, DBRS may assign lower final rating to the Notes, or may avoid assigning final rating to the Notes altogether.

This rating is based upon DBRS’ review of the following analytical considerations:
• Transaction structure, the form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of subordination, a reserve funded through a subordinated loan and excess spread. For the purpose of analysing this transaction, DBRS considers the credit enhancement of the Series A Notes to be the difference between: i) the non-defaulted performing portfolio plus the current balance in the Reserve Fund, and ii) the total outstanding balance of the Series A Notes. The current credit enhancement level of the Series A Notes is equal to EUR 799 million and is sufficient to support the AAA (sf) rating.
-- Funded at the beginning of the transaction through the issuance of a subordinated loan granted by BBVA, the Reserve Fund was initially set at EUR 465.975 million. The Reserve Fund balance is currently EUR 451.32 million.
-- The Reserve Fund is available to cover shortfalls in the senior expenses and interest on the Series A, Series B and Series C Notes (the “Bonds”).
---- The Reserve Fund does not cover the interest of the Series B Notes if: i) the cumulative balance of the defaulted loans is greater than 25.00% of the initial balance of the portfolio, and ii) the Series A Notes have not been fully amortised.
---- The Reserve Fund does not cover the interest of the Series C Notes if: i) the cumulative balance of the defaulted loans is greater than 18.00% of the initial balance of the portfolio, and ii) the Series A and Series B Notes have not been fully amortised.
-- The Reserve Fund has to be maintained at the Required Reserve Fund level. The Required Reserve Fund level can only be reduced if all three of the following apply:
---- The transaction is at least three years old.
---- The Reserve Fund is at least 32.70% of the outstanding aggregate balance of the Bonds.
---- The Reserve Fund balance is greater than EUR 232.99 million, which is 8.175% of the initial aggregate balance of the Bonds.
-- In addition, the Required Reserve Fund level cannot be reduced unless:
---- The balance of the Reserve Fund is at least at the Required Reserve Fund level on the relevant Payment Date; and,
---- The outstanding balance of the non-failed assets, that are more than 90 days in arrears, is greater than 1% of the total outstanding balance of the non-defaulted assets.

• The transaction has a swap agreement under which:
-- the Issuer pays all interest received from the Collateral Loan Obligations during the related Calculation Period.
-- the Swap Counterparty pays the weighted average interest rate of the Bonds plus 0.50% per annum on the average balance of the Collateral Loan Obligations.

• The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the approved terms. For this transaction, the rating of the Series A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date, in accordance with the transaction documents. Interest and principal payments on the Notes will be made quarterly, generally on the 16th day of each February, May, August and November. The next payment date will be 16 November 2011.

• The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.

• Soundness of the legal structure and presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the special purpose vehicle, as well as the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

The principal methodology is Master European Granular Corporate Securitisations (SME CLOs), which can be found on our website under Methodologies.

DBRS determined key inputs used in our analysis based on historical performance data provided for the originator and servicer as well as analysis of the current economic environment. Further information on DBRS’ analysis of this transaction will be available in a rating report on http://www.dbrs.com, or by contacting us at info@dbrs.com.

The sources of information used for this rating include parties involved in the rating, including but not limited to BBVA EMPRESAS 2, F.T.A., Europea de Titulización S.A., S.G.F.T. and Banco Bilbao Vizcaya Argentaria S.A.

Overall, DBRS considers the information available to it for the purposes of providing this rating was of below-average quality. As a result, DBRS adjusted its analysis to account for the quality of information provided. The source of our concern is the historical information provided for DBRS to determine the average annual default rate for corporate borrowers. The average annual default rate for corporate borrowers is a key input parameter in DBRS analysis, and is derived by DBRS from information provided to it by BBVA. BBVA provided historical default and delinquency information based on the notional amount of loans in its portfolio. DBRS requests that such information is provided based on the number of loans, and not the notional amount of loans. Historical default and delinquency information provided by notional could positively skew average annual default rate statistics due to the potential positive impact from large notional corporate borrowers, which generally have lower default rates. DBRS observes that default rates provided by notional amount could be between 1.5 to 3.0 times the default rates provided by number of loans when compared with identical data, but recognizes that such differences are originator and portfolio dependent. DBRS was unable to obtain additional information from BBVA to determine the potential extent of such a skew in the BBVA portfolio, and as a result applied its own judgement in determining the potential impact of such positive skew. As a result, the data provided by BBVA is considered to be below-average quality. DBRS considered the quality of information provided, and adjusted its analysis accordingly. DBRS multiplied the average annual default rate determined based on the information provided by BBVA by 2.5 times to compensate for the quality and type of information provided for a AAA (sf) rating. Aside from the data quality issue with regards to the calculation of the average annual default rate, DBRS considers the other information available to it for the purposes of providing this rating was of satisfactory quality.

This is the first DBRS rating on this financial instrument.

For additional information on DBRS European SME CLOs, please see European Disclosure Requirements, located at http://www.dbrs.com/research/235269.

Lead Analyst: Simon Ross
Rating Committee Chair: Jerry van Koolbergen
Provisional Rating Date: 4 October 2011

Note:
All figures are in Euro unless otherwise noted.