DBRS Takes Rating Action on IM Sabadell RMBS 2 Fondo De Titulización De Activos

DBRS Ratings Limited (DBRS) has today downgraded the rating on the following notes issued by IM Sabadell RMBS2 Fondo de Titulización de Activos (The Issuer):

-- Class A downgraded to AA (sf) from AA (high) (sf).

The downgrade of the rating on the Class A notes is based on the amendments to the transaction implemented on 22 February 2016 and the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and default, as of January 2016;
-- Portfolio probability of default (PD) rate, loss given default (LGD) and expected losses for the remaining collateral pool;
-- Current available credit enhancement to the senior Class A Notes to cover the Expected Losses at the AA (sf) rating level.

The transaction amendments consist of:

-- The termination of the swap agreement;
-- The increase of the Reserve Fund by €5.188 million to €23.475 million;
-- The revision of the Reserve Fund target balance as the maximum of: 1) 4.00% of the outstanding balance of the notes; or 2) €11.387 million.

IM Sabadell RMBS 2 FTA is a residential–mortgage securities transaction issued by Banco de Sabadell, S.A. in June 2008.

As of January 2016, loans in two- to three-month arrears were at 1.93%, and loans more than three months in arrears were at 0.42% of the non-defaulted pool balance. The cumulative default ratio, as a percentage of the initial pool balance at the transaction closing, increased to 1.90%. The portfolio is performing in line with DBRS’s expectations and DBRS has maintained its PD and LGD assumptions as last year’s rating reviews.

Credit enhancement to the Class A notes is provided by the subordination of the junior notes and the Reserve Fund. Following the amendments, the credit enhancement to the Class A notes as a percentage of the non-defaulted balance of the portfolio has increased to 9.00%.

The termination of the interest rate swap in the transaction removed the guaranteed excess spread to the Issuer. There will be no swap termination payment due as this is a mutual agreement between the swap counterparty and the Issuer.

DBRS conducted cash flow analysis to assess the impact of the amendments. DBRS found that the increase of the Reserve Fund is not sufficient to cover the Expected Losses in the upward interest rate stressed scenarios at the AA (high) (sf) rating level. Accounting for this as well as the other analytical considerations, DBRS has downgraded the rating on the Class A notes to AA (sf) from AA (high) (sf).

Banco Santander S.A. (Santander) acts as account bank to this transaction. Santander’s current long- term Critical Obligations Rating (A (high)/R-1 (middle)) complies with the Minimum Institution Rating given the rating assigned to the Class A, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is: “Master European Structured Finance Surveillance Methodology

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

DBRS conducted a review of the amendment documents including Amendment Deed, Amended Treasury Account Bank, Amended subordinate Loan Reserve Fund, Cancelation of the Swap and the Swap Deposit. Other transaction legal documents have remained unchanged since the most recent rating action and were not reviewed.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include investor reports provided by InterMoney S.A., S.G.F.T., the amendment documents provided by InterMoney S.A., S.G.F.T and the loan by loan data from the European DataWarehouse.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 5 August 2015 when DBRS confirmed the rating of Class A at AA (high).

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base case probability of default (PD) and loss given default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The base case PD and LGD of the current pool of mortgages for the Issuer are 2.17% and 12.45%, respectively. At the AA (sf) rating level, the corresponding PD is 17.16% and the LGD is 29.94%.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to be at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to be at A (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A notes would be expected to be at BBB (high) (sf).

Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of a (high) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Initial Lead Analyst: Alastair Bigley Initial Rating Date: 2 March 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Kevin Ma Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited 20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375