DBRS Downgrades Series A Notes of Hipocat 14 Fondo de Titulización

DBRS Ratings Limited (“DBRS”) has today downgraded ratings of the Series A Notes of Hipocat 14 Fondo de Titulización to ‘A’ (low) (sf) from its previous rating of ‘A’ (high) (sf). DBRS has also removed the rating from Under Review with Negative Implications. The action follows the Notes remaining Under Review with Negative Implications on 2 January 2013 owing to performance issues and pending resolution of counterparty replacement.

Hipocat 14 is a Spanish securitisation of floating rate second drawdowns of the “Credito Total” mortgage product originated and serviced by CatalunyaBanc. The “Credito Total” mortgage product is a credit line where the borrower has flexibility throughout the life of the credit to draw amounts up to a pre-established limit. In order to qualify for further drawdowns, borrowers must not have any delinquent accounts with CatalunyaBanc or negative marks on their credit profile with the Bank of Spain. The limit to the draw amount is based on the original LTV and original property valuations. Each draw on the line of credit ranks pari-passu regardless of the date it was drawn.

The current portfolio has a weighted average loan to value (“LTV”) of 33.4% versus an LTV of 52.1% at the time of the initial DBRS rating (assuming all outstanding drawdown amounts for each loan). The current maximum drawdown LTV has increased to 77.44% versus 67.29% over the same time. Although the transaction benefits from the decrease in the weighted average LTV, the adverse effect from the increase in the maximum drawdown LTV outweighs the benefit as the Loss Given Default (LGD) for each rating stress is calculated based on maximum drawdown LTV.

The rating action reflects the following analytical considerations:
• Updated loan level analysis of the mortgage receivables
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance
• Indexation of the valuations based on data from the National Institute of Statistics (INE)
• Base case Market Value Decline assumption of 29.8%
• Increase of the time to recovery assumption to 48 months from 36 months as detailed in the DBRS Master European Residential Mortgage-Backed Securities Rating Methodology
• Analysis of the underlying cash flows assuming no benefit to the interest rate swap

CatalunyaBanc is the swap counterparty for the transaction. CatalunyaBanc is below the counterparty rating threshold for the highest assigned rating to a transaction not higher than ‘A’ (high) per the DBRS Swap Criteria for European Structured Finance Tranasactions. Although not required to post collateral under the transaction documents, CatalunyaBanc has not been replaced with an eligible counterparty. As such, DBRS analysed the expected cash flows of the transaction without the benefit of the interest rate swap.

Banco Santander S.A. is the holder of the Treasury Account for the fund. Banco Santander S.A. meets the minimum institution rating necessary for the highest security to be rated ‘A’ (low) in accordance with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Swap Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European Structured Finance Servicers
• Unified Interest Rate Model Methodology for European Securitisations
• Master European Structured Finance Surveillance Methodology

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The sources of information used for this rating include a loan level collateral file as of 21 December 2012 and monthly investor reports, both provided by CatalunyaBanc; and, monthly home price data from 2004-2012 from INE. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see the linking document.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Keith Gorman
Initial Rating Date: 17 May 2011
Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Keith Gorman
Most Recent Rating Date 2 January 2013
Rating Committee Chair: Erin Stafford