Moody’s Investors Service yesterday downgraded three tranches from Caja Madrid's high LTV Spanish RMBS, Madrid RMBS II. The deal priced in December 2006 and by August last year, Caja Madrid reported it had tapped the securitization's reserve fund for €846 million ($1.32 billion), or 1.4% of its required amount.

Caja Madrid structured its Caja Madrid II deal with shorter write-off mechanisms to reduce the required credit enhancement. This made the principal and interest charged off greater than the approximately 70 basis points of spread provided by the swap.

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