An affiliate of the Blackstone Group is securitizing pool of legacy re-performing Spanish mortgages originated through a defunct Catalonian lender.

The deal, SRF 2017-2 Fondo de Titulización will issue €172 million (US$203.1 million) in notes backed by €173.3 million in balances of well-seasoned, first-lien mortgages issued to 2,991 borrower residents in Spain. A Blackstone-controlled fund purchased the loans at a discount from the Spanish FROB rescue fund nearly four years ago.

The €103.2 million Class A tranche benefits from 42.16% credit enhancement and is likely to have split ratings: DBRS has assigned a preliminary AAA rating, while Fitch Ratings (AA+) and Moody’s Investors Service (Aa2) provided ratings one and two notches lower, respectively.

In its presale report, Moody’s cited the poor performance of existing bonds backed by mortgages underwritten by the former Catalunya Banc – a troubled lender from Barcelona that was nationalized in 2011 before returning to the private sector in a 2014 buyout by Banco Bilbao Vizcaya Argentaria (BBVA).

The SRF 2017-2 portfolio of RPL mortgages is heavily concentrated (68.7%) in the Catalonia region.

The securitization is the third backed by some of the more than €6.4 billion in bad loans the Spanish government offloaded through its FROB rescue fund. FROB sold the loans to Blackstone in an auction that brought in nearly half (€3.6 billion) of the loans’ aggregate outstanding balance.

Catalunya loans have also been included in securitizations under the Hipocat and MBSCAT platforms, and been among the weaker performing asset-backeds in the European market, according to Moody’s. Catalunya issued mortgages to large segments of non-Spanish borrowers, and specialized in “flexible” mortgage products allowing homeowners to borrow against their homes through a line of credit.

While only 8.1% of the loans in SFR 2017-2 are foreign-based, 56% of the loans are under the so-called “multi-credit” terms allowing home-equity draw-downs. Nearly 80% of the loans have been previously restructured, as well.

The portfolio’s credit quality is aided by the fact most of the loans in the pool are issued to owner-occupant borrowers, and all are current with none exceeding 35 days in arrears since 2016.

The average loan balance is €121,691.

The note proceeds will be used to acquire the loans for the trust. BBVA will act as master servicer of the loans, which will be managed by a special servicer (Anticipa) that handles third-party real estate assets for Blackstone and BBVA. All of the notes, with a legal final maturity of 2063, will carry floating-rate coupons with a step-up date in April 2022.

A majority of the loans (68.7%) are for homes in the autonomous Catalonia region of Spain, where the Barcelona-based Catalunya concentrated its mortgage business.

The housing market in Spain had an extended slump after the crisis with prices bottoming out in 2014, but prices have since bounced back. In Catalonia, the peak-to-trough drop of 46.6% in home values in 2013 had since improved by 23.8%.

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