OREANDA-NEWS. Fitch Ratings has affirmed eight and upgraded one tranche of three Spanish RMBS transactions. The agency has also revised the Outlook on two tranches to Stable from Negative, and to Positive from Stable on one tranche. A full list of rating actions is available at the end of this commentary.

The transactions are part of a series of RMBS transactions that are serviced by Caja Laboral Popular Cooperativa de Credito (BBB+/Stable/F2) for IM Caja Laboral 2, Banco Bilbao Vizcaya Argentaria, S.A. (A-/Stable/F2) for IM Terrassa MBS 1 and ING Bank N.V. (A+/Negative/F1+) for Sol-Lion, FTA.

KEY RATING DRIVERS
Stable Credit Enhancement
The notes in IM Caja Laboral 2 and IM Terrassa MBS 1 are currently paying sequentially. A switch to pro-rata is not expected in the near future as various trigger conditions remain unmet. Sol-Lion, FTA may see a switch to pro-rata in the next 12 to 18 months as continued amortisation of the A Class allows the B and C Classes to approach their target level of 4% (currently at 3.4%).

Stable Asset Performance
The deals have shown sound asset performance compared with the Spanish average. Three-months plus arrears (excluding defaults) as a percentage of the current pool balance range from 0.4% (Sol-Lion, FTA) to 1.2% (IM Terrassa MBS 1). These numbers remain below Fitch's index of three-months plus arrears (excluding defaults) of 1.7%.

Cumulative defaults, defined as mortgages in arrears by more than 12 months (18 months for Sol-Lion, FTA), range from 0.4% (Sol-Lion) to 9.2% (IM Terrassa MBS 1); IM Terrassa MBS 1 is the only default above the sector average of 4.9%. Fitch believes that these levels may rise further as late-stage arrears roll into the default category.

Reserve Fund Draws
After various draws and partial replenishments, the reserve fund for IM Caja Laboral is close to its target (92%). However, for IM Terrassa MBS 1 the reserve fund remains fully depleted, while the principal deficiency ledger (PDL) reports small debits of 0.03%. Given the performance of this deal, Fitch believes further increases on PDL debit balances may materialise during the next payment dates.

In contrast, Sol-Lion features a fully-funded reserve fund (it has never been drawn). Given low arrears, Fitch believes the transaction will avoid depletions from the reserve, although it is able to begin amortising to its floor level of EUR41.0m once the conditions are met.

Payment Interruption Risk
Both IM Caja Laboral 2 and Sol-Lion have liquidity to cover a number of payments due to the senior notes and to relevant counterparties in case of default of the servicer or the collection account bank. In contrast, the depleted reserve fund in IM Terrassa MBS 1 exposes senior noteholders to payment interruption risk consistent with the low investment-grade ratings.

Notable Rating Actions
Given the stable levels of arrears and sufficient reserve fund, Fitch has revised the Outlook of the Class C notes of IM Caja Laboral 2.

For IM Terrassa MBS 1, the reduction in arrears and stabilisation in defaults mean overall credit performance has moved to a sounder footing, as reflected in today's Outlook revisions to Stable for the senior notes.

Finally, given the stable performance, low levels of arrears and defaults, and the ample reserve fund balance, Fitch considers that Classes B and C of Sol-Lion have shown an improvement in credit quality, leading to today's upgrade and Outlook revision. The more senior notes in these deals are capped at the 'AA+sf' category on account of the country celling.

RATING SENSITIVITIES
A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift in interest rates could jeopardise the ability of the underlying borrowers to meet their payment obligations. If this shows up in more volatile arrears patterns or in a material increase in default rates, this could trigger negative rating action.

Today's rating actions are as follows:

IM Caja Laboral 2:
Class A notes (ISIN ES0347552004): affirmed at 'AA-sf'; Outlook Stable
Class B notes (ISIN ES0347552012): affirmed at 'BBB+sf'; Outlook Stable
Class C notes (ISIN ES0347552020): affirmed at 'B-sf'; Outlook revised to Stable from Negative

IM Terrassa MBS 1:
Class A notes (ISIN ES0347855001): affirmed at 'BBBsf'; Outlook revised to Stable from Negative
Class B notes (ISIN ES0347855019): affirmed at 'CCCsf'; Recovery Estimate 80%
Class C notes (ISIN ES0347855027): affirmed at 'CCsf'; Recovery Estimate 0%

Sol-Lion, FTA:
Class A notes (ISIN ES0317104000): affirmed at 'AA+sf'; Outlook Stable
Class B notes (ISIN ES0317104018): upgraded to 'A+sf' from 'Asf'; Outlook Stable
Class C notes (ISIN ES0317104026): affirmed at 'BBBsf'; Outlook revised to Positive from Stable.