Moody's Investors Service has recently rated a deal out of Spain that is likely to serve as an archetype for similar structures in other mortgage bond and pfandbriefe markets.

The EURO2.048 billion fixed-rate bonds were issued by AyT Cedulas Cajas Fondo de Titulizacion de Activos and received a (P)Aaa rating from Moody's. Ahorro Y Titulizacion structured the transaction and is backed by the shareholders of the Spanish Confederation of Savings and Loans institutions (CECA) and Ahorro Corporacion Financiera SVB.

The transaction is rather unique in that the proceeds from the bond issuance will allow AyT to purchase a portfolio of Cedulas (Spanish mortgage bonds) from 15 different Cajas (savings banks), whose scheduled payments are similar to those due under the bonds. Each Cedulas is a recourse of the Caja that issues it, and is secured on a pool of mortgages owned by that Caja.

The transaction benefits from a bi-level credit enhancement. By law, the Cedulas issued by the Cajas are limited to 90% of the mortgage portfolio on which they are secured and provide at least 10% overcollateralization in the event the Caja becomes insolvent.

Additionally, the Caja's subordinated loan provides a reserve fund for AyT, which is estimated to be around 3.5% of the Cedulas purchase amount.

According to Moody's, the Cedulas provide originators with flexibility, something not traditionally found in Spanish mortgage-backed securities.

Some of the upsides include the securities providing the originator with the ability to vary the quality of the mortgage portfolio securing the structure, the ability to change servicing standards and allowing interest rates and maturity mismatches between the Cedulas that issue and the mortgage-backed securities.

Furthermore, it is not certain that the underlying Cedulas transactions provide bankruptcy remoteness for the mortgage portfolios if one or more of the originators become insolvent.

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