OREANDA-NEWS. July 06, 2015. Fitch Ratings has upgraded AyT Deuda Subordinada 1, as follows:

EUR144.0m Class A (ES0312284005): upgraded to 'CCCsf' from'CCsf'
EUR60.7m Class B (ES0312284013): upgraded to 'CCsf' from 'Csf'
EUR22.8m Class C (ES0312284021): affirmed at 'Csf'

The transaction is a securitisation that originally consisted of a portfolio of 10-year bullet subordinated bonds, originated by nine Spanish financial institutions. After several mergers between the issuers and debt per equity exchanges the portfolio currently consists of EUR123m subordinated debt from four investment grade Spanish entities and equity from Banco Mare Nostrum (BMN, BB/Stable/B), with a book value of EUR97.4m

KEY RATING DRIVERS
Recovery Proceeds From Equity Disposal
Fitch has upgraded the class A notes as a potential IPO or sale of BMN would result in improved recovery proceeds for the transaction and potentially avoiding a future default of the class A notes. Fitch understands that an IPO or share disposal is being considered by BMN and the Spanish government, which is the owner of 65% of BMN' shares, as highlighted by several public comments. Additionally, Fitch has upgraded the class B notes as their default does not seem inevitable as a very high valuation of BMN's shares would also avoid such default.

Under-collateralisation of the Notes
Disregarding potential recovery proceeds from BMN shares disposal, the class A notes are under-collateralised and the class B and C notes have no collateral. The issuer's assets (excluding BMN's shares) consist of EUR123m of subordinated bonds from investment grade entities while the class A notes total EUR144.0m, resulting in EUR21m under-collateralisation.

Unpaid Interest on Junior Tranches
Interest on the class B and C notes is being deferred and their unpaid cumulative interest is increasing. Cumulative unpaid interest currently stand at EUR735,000 and EUR393,000 for the class B and C notes, respectively.

Notes Amortisation
EUR145m of the class A notes became due for early amortisation in June 2013, due to the exchange of EUR145m of subordinated debt for BMN shares. However, only EUR39.4m could amortise due to insufficient available funds, after fully using the liquidity deposit. Since September 2013, the class A excess spread has been used to amortise class A principal, which has decreased to EUR144.0m from EUR145.1m.

RATING SENSITIVITIES
The ratings are already at a distressed level therefore a further deterioration of the pool is unlikely to affect them. However, a potential sale of BMN shares resulting in recovery proceeds could lead to an upgrade if the proceeds exceeded EUR21.0m class A under collateralisation.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

The majority of the underlying assets have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant Fitch groups and/or other rating agencies to assess the asset portfolio information.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Investors Reports provided by Ahorro y Titulizacion S.G.F.T, S.A. as at 26 May 2015.