It’s not often that ratings agencies are ahead of the curve, but Moody’s recent warnings on systemic risk in the Spanish banking system and its move to review for downgrade the ratings on 34 of the country’s banks are looking positively prescient.
On Wednesday, Caja Madrid – Spain’s second-largest savings bank – said it would skip EUR1.12m in interest payments on residential mortgage-backed securities due to soaring defaults on the underlying home loans.
Here’s Bloomberg on the matter:
Caja Madrid will miss the payments on 143.4 million euros of three junior portions of its Madrid RMBS II and RMBS III issues after defaults on the underlying mortgages rose to a trigger level, according to Titulizacion de Activos SGFT, the deal’s trustee.
“If performance continues to weaken, other transactions backed by high loan-to-value mortgages from other issuers may also face interest deferral,” said Rui J. Pereira, managing director and head of structured finance at Fitch Ratings in Madrid.
Caja Madrid issued its RMBS II bonds in 2006 in seven portions, rated from the top AAA down to BB, two steps below investment grade. As defaults on the underlying home loans increase, the issuer is obliged under the deal’s terms to stop paying interest to noteholders, starting with the lower-ranking junior bonds.
When defaults reach 18.3 percent, all investors except for those in the highest-ranked notes will be cut off, according to Standard & Poor’s. About 16 percent of the underlying mortgages are now either in arrears by more than 90 days or have already defaulted, S&P data show.
Caja Madrid has sold 9.2 billion euros of mortgage-backed bonds since 2006 in four transactions, according to data compiled by Bloomberg. The lender packaged home loans it made to borrowers at the peak of Spain’s 14-year real-estate boom
(H/T Anousha Sakoui)
Related links:
Los covered bonds, por favor – FT Alphaville