OREANDA-NEWS. Fitch Ratings has affirmed 11 tranches and downgraded one tranche of four AyT ICO-FTVPO RMBS deals. The underlying pools are mostly composed of loans backed by VPO properties (Viviendas de Proteccion Oficial), allocated to low-income borrowers fulfilling stated eligibility criteria.

The deals are originated and serviced by Banco Mare Nostrum (BB/Stable/B) for AyT ICO-FTVPO Caja Murcia; by Kutxabank, S.A (BBB/Positive/F3) for AyT ICO-FTVPO Caja Vital Kutxa; by ABANCA Corporacion Bancaria, S.A (BB+/Stable/B) for AyT ICO-FTVPO I and by Bankia, S.A (BBB-/Stable/F3) for AyT ICO-FTVPO III, Series Rioja.

A full list of rating actions is detailed at the end of this commentary.

KEY RATING DRIVERS
Stable Credit Enhancement
The notes are currently paying down sequentially. AyT ICO-FTVPO I may switch to pro-rata in the next 18 months as the relevant triggers are close to being met. For the remaining transactions a switch to pro-rata is not expected in the near future as the conditions are not expected to be met. Fitch believes that available credit enhancement, built up through the sequential amortisation, is sufficient to withstand the stress scenarios associated with the ratings and has consequently affirmed the relevant notes.

Stable Asset Performance
The deals have shown sound asset performance compared with the Spanish average. As of the latest reporting periods, three-months plus arrears (excluding defaults) as a percentage of the current pool balance ranges from 0% (AyT ICO-FTVPO Caja Murcia) to 0.7% (AyT ICO-FTVPO I). These numbers remain below Fitch's index of three-months plus arrears (excluding defaults) of 1.3%.

Cumulative defaults, defined as mortgages in arrears by more than 18 months in all transactions, represent less than 1% of the original balance, below the Spanish average of 5.5%. Fitch, however, believes that these levels may rise further as late-stage arrears roll into the default category.

High Mortgage Prepayments
AyT ICO-FTVPO Caja Murcia has reported high mortgage prepayments in the last period (42.3%), significantly above the market average (4.6% per year). As these rates are not consistent with the current macroeconomic environment and levels observed in the market, Fitch cannot rule out the possibility that some prepayments are the result of originator support for troubled borrowers by means of refinancing. If refinancing in such circumstances has been offered in the past, it may not be sustained indefinitely, which could translate into further defaults.

Subsidy Interruption
The prices of the VPO properties are regulated by the Spanish government and VPO borrowers are eligible to obtain government sponsorship in the form of partial (up to 20%) subsidy to the monthly instalment. The portion of subsidised loans in the pools ranges between 0% (AyT ICO-FTVPO Caja Vital Kutxa) and 100% (AyT ICO-FTVPO Caja Murcia).

In its analysis, Fitch has tested potential interruption of the government subsidy by assigning a higher probability of default to subsidised loans. The analysis showed that the credit enhancement was sufficient to withstand these stresses.

Account Bank Exposure
In accordance with Fitch's counterparty criteria, the ratings of AyT ICO-FTVPO III Series Rioja are capped at 'A+sf', as the account bank, Banco Santander (A-/Stable/F2), has committed to implementing remedial actions upon a downgrade of its IDR below 'BBB+'/'F2'. Our criteria specify that direct support counterparties such as account banks with rating triggers of 'BBB+'/'F2' can only support note ratings up to 'A+sf'. As the reserve fund is the only source of credit enhancement for the class C notes the rating of these notes is linked to the rating of Santander, currently implying a cap of 'A-sf'/Stable.

Following the recent change by AyT ICO-FTVPO Caja Murcia of its account bank to Banco Santander (A-/Stable/F2) from Barclays Bank and because the reserve fund is the only source of credit enhancement for the class C notes, Fitch has downgraded the notes and linked them to the rating of Santander, currently implying a cap of 'A-sf'/Stable.

Reserve Fund Draws
The reserve funds of both AyT ICO-FTVPO Caja Vital Kutxa and AyT ICO-FTVPO I remain close to their target (99.6% and 98.8% respectively). Given the small margin guaranteed by the swap (10 bps), Fitch believes further draws may take place on future payment dates, but are expected to be limited in size and to have a limited effect on the junior tranches. In contrast the other deals feature a fully funded reserve fund. The resilience of the reserve funds is reflected in Fitch's affirmation of the ratings and the Stable Outlooks across the structure.

Payment Interruption Risk
The current reserve fund level provides sufficient liquidity to cover at least six months of senior fees and interest on the senior notes in case of default of the servicer or the collection account bank.

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.

Should the effect of the macroeconomic factors result in more volatile arrear patterns or a material increase in default rates, this could trigger negative rating action. Fitch may also downgrade the ratings if significant draws from the reserve fund occur in the next payment dates as this may compromise the protection of the junior classes.

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 pools and the transactions. 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.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
- Loan-by-loan data provided by Haya Titulizacion and sourced from the European Data Warehouse with a cut-off date of:

21 January 2016 for AyT ICO-FTVPO Caja Murcia
29 February 2016 for AyT ICO-FTVPO Caja Vital Kutxa
9 January 2016 for AyT ICO-FTVPO I
13 January 2016 for AyT ICO FTVPO III Series Rioja

- Maturity extension provided by Haya Titulizacion with a cut-of date of 31 December 2015

MODELS
The model below was used in the analysis. Click on the link for a description of the model.

EMEA RMBS Surveillance Model.
Today's rating actions are as follows:

AyT ICO-FTVPO Caja Murcia:
Class A notes (ISIN ES0312287008): affirmed at 'AA+sf'; Outlook Stable
Class B notes (ISIN ES0312287016): affirmed at 'AA+sf'; Outlook Stable
Class C notes (ISIN ES0312287024): downgraded to 'A-sf' from 'Asf'; Outlook Stable

AyT ICO-FTVPO Caja Vital Kutxa:
Class A notes (ISIN ES0312304001): affirmed at 'AAsf'; Outlook Stable
Class B notes (ISIN ES0312304019): affirmed at 'A+sf'; Outlook Stable
Class C notes (ISIN ES0312304027): affirmed at 'BBB-sf'; Outlook Stable

AyT ICO-FTVPO I:
Class A notes (ISIN ES0312305008): affirmed at 'AA+sf'; Outlook Stable
Class B notes (ISIN ES0312305016): affirmed at 'Asf'; Outlook Stable
Class C notes (ISIN ES0312305024): affirmed at 'BBB-sf'; Outlook Stable

AyT ICO-FTVPO III Series Rioja:
Class A notes (ISIN ES0312289038): affirmed at 'A+sf'; Outlook Stable
Class B notes (ISIN ES0312289046): affirmed at 'A+sf'; Outlook Stable
Class C notes (ISIN ES0312289053): affirmed at 'A-sf'; Outlook Stable