(The following statement was released by the rating agency)
Oct 02 - OVERVIEW
-- We have assigned preliminary ratings to STORM 2012-V's class A, B, C, and D notes.
-- The transaction securitizes a pool of performing loans secured on first-ranking (or first- and consecutive-ranking) mortgages over properties in the Netherlands.
-- Obvion owns and services these mortgages.
Standard & Poor's Ratings Services today assigned its preliminary credit ratings to STORM 2012-V B.V.'s EUR1,579.7 million residential mortgage-backed floating-rate notes. At closing, STORM 2012-V will also issue EUR15.8 million of unrated notes (see list below).
STORM 2012-V will be the latest securitization of mortgage loans originated by Obvion N.V., which was previously called ABP Hypotheken N.V. and was a 100% subsidiary of Stichting Pensioenfonds ABP (ABP). It has been a mortgage originator in the Netherlands since 1980. Since April 2002, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) (AA/Negative/A-1+) has held 70% of Obvion's shares and ABP has held the remaining 30%. As of May 2012, Rabobank Nederland has 100% ownership of Obvion, after acquiring all of its shares.
The collateral comprises performing loans secured on first-ranking (or first- and consecutive-ranking) mortgages over properties in the Netherlands. Obvion owns and services these mortgages.
The main features of the transaction are:
-- STORM 2012-V is a repeat transaction for Obvion and the structure remains largely unchanged from previous transactions.
-- STORM 2012-V is the 22nd transaction in the STORM series for Obvion.
-- Rabobank Nederland is a counterparty to this transaction, providing the liquidity facility, a commingling guarantee, a construction deposit guarantee, and acting as the back-up swap counterparty.
-- Like STORM 2012-IV B.V. and STORM 2012-III B.V., this transaction includes construction loans, which carry an element of set-off risk because of the potential that the seller could fail to meet draw-down requests.
Our analysis indicated the following key risks:
-- Before the first optional redemption date, Obvion, in its role as the originator, may make further advances to borrowers, which STORM 2012-V may acquire. In addition, loans in breach of the representations and warranties may be replaced. This leads to a risk that the portfolio's credit quality could be reduced. We believe that eligibility criteria in the transaction documents will mitigate the risk of deterioration in the portfolio's credit quality. In particular, the documents require that further advances must pass a weighted-average foreclosure frequency (WAFF) and a weighted-average loss severity (WALS) test before being included in the portfolio.
-- The portfolio's weighted-average loan-to-value (LTV) ratio of 100.62% is high compared with other European jurisdictions. In our opinion, this risk is mitigated by the levels of credit enhancement, which we consider to be commensurate with the rating category. Various incentives under the Dutch tax regime mean that high LTV ratios are not necessarily an indicator of higher risk in the Dutch mortgage market. The incentives include the tax deductibility of mortgage interest and the tax efficiency of savings linked to insurance policies.
-- As in many other Dutch RMBS transactions, there is a risk that, if a mortgage borrower's insurance policy provider becomes insolvent, the borrower may be able to set off any resulting loss of his insurance policy repayments against his mortgage loan. In this transaction, there are 42 insurance policy providers, with the largest exposure equating to 1.72% of the portfolio. We consider that the available credit enhancement adequately covers the risk of borrower set-off. Therefore, we can delink the ratings in our analysis on the notes from the ratings on the insurance companies, and assign our 'AAA' rating to the most senior class of notes.
-- If Obvion becomes insolvent, mortgage collection amounts that have not been swept may get caught up in its bankruptcy estate. As the seller is an unrated entity, Rabobank Nederland will offer a guarantee, which we believe mitigates this commingling risk. The transaction documents make additional provisions in case the long-term rating on Rabobank Nederland drops below the minimum eligible rating to support the highest-rated supported note, which is 'A' (or 'A+' if the short-term rating is less than 'A-1') when supporting 'AAA' rated notes.
-- The collateral portfolio includes construction loans, e.g., where borrowers have placed part of the agreed mortgage loans on deposit with the seller. These deposits are typically for the purpose of construction and renovation of the mortgaged properties, and the seller will pay them to the borrowers in stages as the construction or renovation works progress. If the seller becomes insolvent and fails to pay the deposit to the borrower, the borrower will likely be able to set off the amount of the undrawn deposit against the amount owed to the issuer under the mortgage loan. The issuer will have the benefit of a construction deposit guarantee from Rabobank Nederland, under which the issuer will be able to draw an amount that is equal to the aggregate outstanding construction deposits, if the seller becomes insolvent. The transaction documents make additional provisions in case the long-term rating on Rabobank Nederland drops below the minimum eligible rating to support the highest-rated supported note, which is 'A' (or 'A+' if the short-term rating is less than 'A-1') when supporting 'AAA' rated notes.
Our ratings reflect the transaction's payment structure and cash flow mechanics, and a cash flow analysis to determine whether the notes could be repaid under stress test scenarios. Another key consideration in our rating analysis is the protection for noteholders, which is provided by a combination of subordination, a liquidity facility, and a cash reserve to cover credit losses and income shortfalls.
This transaction is expected to close in October 2012. RELATED CRITERIA AND RESEARCH -- Presale: STORM 2012-V B.V., Oct. 2, 2012 -- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- Principles Of Credit Ratings, Feb. 16, 2011 -- Methodology: Credit Stability Criteria, May 3, 2010
-- Methodology And Assumptions: Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009
-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008
-- A Listing Of S&P's New Actions Aimed At Strengthening The Ratings Process, Feb. 7, 2008
-- Dutch RMBS Market Overview And Criteria, Dec. 16, 2005 -- Cash Flow Criteria for European RMBS Transactions, Nov. 20, 2003 -- Dutch RMBS Index Reports, published quarterly RATINGS LIST STORM 2012-V B.V. EUR1,579.7 Million Mortgage-Backed Floating-Rate Notes And EUR15.8 Million Unrated Notes Class Prelim. Prelim. rating amount (mil. EUR) A AAA (sf) 1,500.0 B AA+ (sf) 29.1 C A+ (sf) 23.8 D BBB (sf) 26.8 E NR 15.8 NR--Not rated. ((Bangalore Ratings Team, Hotline: +91 80 4135 5898, Bhanu.firstname.lastname@example.org, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.email@example.com))