OREANDA-NEWS. Fitch Ratings has downgraded AyT CGH Caja Cantabria I's class C and D notes and affirmed the others, as follows:

Class A notes (ISIN ES0312273446): affirmed at 'A+sf'; Outlook Stable
Class B notes (ISIN ES0312273453): affirmed at 'BBB+sf'; Outlook Stable
Class C notes (ISIN ES0312273461): downgraded to 'Bsf' from 'BBsf'; Outlook Negative
Class D notes (ISIN ES0312273479): downgraded to 'CCCsf' from 'Bsf'; Recovery Estimate 85%

The transaction is part of a series of RMBS transactions that are serviced by Liberbank, S.A. (BB+/Negative/B).

KEY RATING DRIVERS
Stable Credit Enhancement
The notes are currently paying sequentially. As delinquencies are above the trigger level and the reserve fund is below target, we do not expect a switch to pro-rata in the near future. As of September 2014, credit enhancement available to the senior class had marginally increased to 19.75% from 19% 12 months ago.

Stable Asset Performance
Arrears levels remain stable but above the Spanish average for the past year. As of September 2014, three-months plus arrears (excluding defaults) as a percentage of the current pool balance were 2.3%, compared with Fitch's index of three-months plus arrears (excluding defaults) of 1.7%.

Cumulative defaults, defined as mortgages in arrears by more than 18 months, stood at 2.2% and remain below the sector average of 4.9%. Fitch believes that defaults will continue to rise as 83% of three-months plus arrears loans are already more than six months overdue.

Given the level of arrears, the increasing proportion of defaults and continued reserve fund draws, Fitch believes the most subordinated tranches do not have enough protection to support the current ratings, leading to a downgrade of the class C and D notes.

Reserve Fund Draws
The reserve fund is at 68% of its target after continued draws and partial replenishment since September 2010. Given the likely increase in defaults, Fitch believes further draws will take place on the next payment dates.

Payment Interruption Risk
The transaction benefits from a dynamic cash reserve sized to cover for two payment dates of interest on the class A notes and senior fees. Combined with the current level of the utilised reserve fund balance, the liquidity in the structure is deemed sufficient to cover payment interruption risk. However, Fitch notes that if further draws continue to take place this liquidity may be insufficient, which could lead to negative rating actions.

RATING SENSITIVITIES
A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift in interest rates might jeopardise the ability of the underlying borrowers to meet their payment obligations.