Moody’s downgraded the rating of Class B notes in FONDO DE TITULIZACIÓN RMBS SANTANDER 7 (“RMBS Santander 7”). The rating action reflects worse-than-expected collateral performance and the unpaid interest accumulated in Class B notes.
Moody’s affirmed the rating of the Class A notes that had sufficient credit enhancement to maintain their current rating.
….EUR4770M Class A Notes, Affirmed Aa1 (sf); previously on Jul 14, 2021 Definitive Rating Assigned Aa1 (sf)
….EUR530M Class B Notes, Downgraded to Caa1 (sf); previously on Jul 14, 2021, Definitive Rating Assigned B3 (sf)
The maximum achievable rating is Aa1(sf) for structured finance transactions in Spain, driven by the corresponding local currency country ceiling of the country.
RATING RATIONALE
The rating action is prompted by the increased key collateral assumptions, namely the portfolio Expected Loss (EL) assumption due to worse-than-expected collateral performance, and the unpaid interest on Class B notes.
Revision of Key Collateral Assumptions:
As part of the rating action, Moody’s reassessed its lifetime loss expectation for the portfolio reflecting the collateral performance to date.
The performance of the transaction has deteriorated since 2022. Total delinquencies have increased in the past year, currently standing at 2.36% of the current pool balance, compared to 1.75% as of February 2022. The default definition in this transaction is more than 90 days in arrears. Cumulative defaults currently stand at 1.67% of the original pool balance up from 1.02% as of November 2021.
Moody’s increased the expected loss assumption to 4.0% as a percentage of the current pool balance from 3.0% due to the deteriorating performance. The revised expected loss assumption corresponds to 4.4% as a percentage of the original pool balance, compared to the original assumption of 3.5%.
Moody’s has also assessed loan-by-loan information as a part of its detailed transaction review to determine the credit support consistent with target rating levels and the volatility of future losses. As a result, Moody’s has maintained the MILAN CE assumption at 12%.
Unpaid interest on Class B notes:
Class B has not received interest payments since August 2022. The cumulative amount of unpaid interest for Class B is approximately EUR4.4 million as of February 2023 and will keep increasing in the next payment dates. This is due to the lack of excess spread and the interest due on Class B ranking subordinated to the replenishment of the reserve fund. Such reserve fund will only become available to cover interest payments on Class B once Class A is fully repaid. In the meantime, unpaid interest on Class B will keep growing without accruing interest on interest.
The reserve fund is currently at 88.3% of its target, as it is used to cover the written-off amounts of defaulted loans given the lack of sufficient excess spread.
