OREANDA-NEWS. Fitch Ratings upgraded one and affirmed 23 tranches of the Cajamar RMBS series. The agency also revised the Outlook to Stable from Negative on seven tranches. A full list of rating actions is available at www.fitchratings.com or by clicking the link above.

The transactions are part of a series of RMBS transactions that were originated and are serviced by Cajamar Caja Rural, Sociedad Cooperativa de Credito (Cajamar, now part of Cajas Rurales Unidas, Sociedad Cooperativa de Credito; rated BB/Negative/B).

KEY RATING DRIVERS

Sufficient Credit Enhancement
The notes in TDA Cajamar 2, IM Cajamar 3 and IM Cajamar 4 are currently amortising on a pro-rata basis. IM Cajamar 5 is expected to switch to pro-rata amortisation in the next year. This, combined with the reserve funds in IM Cajamar 3 and 4 amortising to their respective floors, will lead to a stabilisation in the credit enhancement (CE) levels across the structures. Nevertheless, CE available in these structures is deemed sufficient to support the ratings at their current levels, as reflected in today's affirmation of the notes.

IM Cajamar 6 continues to pay sequentially as its reserve fund is below target. We expect the reserve fund to continue to be replenished, leading to an increase in CE until the notes switch to pro-rata amortisation. Based on the current pace of replenishment, we do not expect the reserve fund to reach its target before August 2016.

Declining Arrears
The rating actions reflect positive asset performance seen over the past 12 months. As of end-October 2014, three-months plus arrears (excluding defaults) ranged from 0.3% (TDA Cajamar 2) to 0.7% (IM Cajamar 6) of the current pool balances.

Cumulative gross defaults (defined as loans in arrears for more than 12 months) are low for IM Cajamar 3, IM Cajamar 4 and TDA Cajamar 2, ranging between 1.6% (TDA Cajamar 2) and 3.1% (IM Cajamar 4) of the initial portfolio balance. In IM Cajamar 5 and IM Cajamar 6 cumulative gross defaults are higher at 4.9% and 7.1% respectively, and above the average 4.8% seen for other Spanish RMBS. Nevertheless, most of these defaults have been fully provisioned for using excess spread.

Historically the excess spread has not always been sufficient to provision for defaults immediately, which has led to some reserve fund draws. However, the reserve funds have subsequently been replenished and are currently on target in TDA Cajamar 2 and all IM deals except IM Cajamar 6, which stood at 63% of its target as of end-October 2014. The reserve fund in IM Cajamar 6 has seen continued replenishments since May 2013.

Counterparty Risk Mitigated
The servicer and collection account bank in these transactions is Cajas Rurales Unidas, Sociedad Cooperativa de Credito (BB/Negative/B). The collection accounts are swept daily with proceeds being transferred to the treasury account bank BNP Paribas (A+/Stable/F1). Fitch has tested the transactions for payment interruption and found that IM Cajamar 3, 4 and TDA Cajamar 2 structures have sufficient liquidity cover for a default of the servicer and collection account bank.

Following full and partial replenishment of the reserve funds in IM Cajamar 5 and Cajamar 6, respectively, which increased available liquidity, the rating of the collection account bank is no longer a rating driver for these transactions. This is because the improved performance and increased liquidity now enable the transactions to mitigate payment interruption risk in case of collection account bank default. Previously, IM Cajamar 5 and Cajamar 6 could not be rated higher than 'Asf'.

Lack of Hedging
Fitch believes the removal of interest rate hedge agreements on IM Cajamar 5 and IM Cajamar 6 transactions in 4Q13 introduces basis and reset risks to the transactions, which we have factored into the analysis. Nevertheless, the agency considers the available credit enhancement is sufficient to withstand the resulting stresses.

RATING SENSITIVITIES

A worsening of the Spanish macroeconomic environment, especially employment conditions, or an abrupt shift of interest rates could jeopardise the underlying borrowers' affordability.

As IM Cajamar 5 and 6 are unhedged, an unexpected sharp rise in interest rates beyond Fitch's stresses would cause the transactions to suffer cash shortfalls, which may result in negative rating actions.

The ratings are also sensitive to changes to Spain's Country Ceiling (AA+) and, consequently, changes to the highest achievable rating of Spanish structured finance notes (AA+sf).