OREANDA-NEWS. Fitch Ratings has upgraded two, downgraded seven and affirmed 21 tranches of the Hipocat series. A full list of rating actions is available at www.fitchratings.com or by clicking the link above. The seven RMBS transactions were originated and are serviced by Catalunya Banc (now part of BBVA Group; A-/Stable/F2).

KEY RATING DRIVERS
Improving Asset Performance
Over the past 12 months, asset performance has improved substantially across the transactions. Fitch notes a strong decrease in proportion of advanced delinquencies, defined as loans with three or more monthly instalments overdue, in Hipocat 7, 8, 9, 10 and 11 to between 4.1% (Hipocat 7) and 7.7% (Hipocat 11) of the current pool, compared with a range between 6.1% (Hipocat 7) and 12.2% (Hipocat 11) last year. This trend is visible also in Fitch's 3M+ arrears index, which currently stands at 1.4% from 1.9% in August 2014.

Fitch also notes that loans in advanced arrears have continued to roll through defaulted status (defined as 18 or more monthly payments overdue). The volume of cumulative defaults currently ranges between 3% (Hipocat 7) and 22.9% (Hipocat 11) of the initial pool balance.

The asset performance has remained solid in Hipocat 5 and 6, the most seasoned transactions of the series. Late stage arrears are stable, between 1.5% (Hipocat 5) and 3.6% (Hipocat 6), while gross cumulative defaults are reported at 0.2% and 0.6%, respectively.

The agency believes that asset performance is likely to continue improving across transactions, mainly driven by the high seasoning of the underlying portfolios, between 120 months (Hipocat 11) and 190 months (Hipocat 5), and the better macroeconomic conditions. This expectation reflects the revision of the Outlook to Stable on most tranches.

Exposure to Payment Interruption Risk
Fitch found that payment interruption risk is adequately covered in Hipocat 5 and 6 as the respective cash reserves are sufficient to cover the payment of senior and swap fees as well as interest on notes in a rising Euribor scenario in case of a disruption in the payment collection process. This risk is not mitigated in the other transactions due to severely drawn (Hipocat 7) or depleted cash reserves. Consequently the notes are capped at a maximum rating of three notches above the servicer rating, as per Fitch's Counterparty Criteria assumptions.

As Catalunya Banc is now part of the BBVA Group, the notes can achieve a maximum rating of 'AA-sf'. Combined with the solid credit enhancement, this is reflected in the upgrade of the senior notes of Hipocat 7.

Increasing Deficiency Ledgers
The principal deficiency ledgers (PDL) have remained broadly unchanged in Hipocat 8 and 9 at EUR12.4m and EUR19.4m, respectively. They have increased sharply in Hipocat 10 and 11 in response to the large flow of period defaults, low recovery income and insufficient excess spread. To date they are reported between EUR77.8m in Hipocat 10 and EUR131.7m in Hipocat 11, compared with EUR44m (Hipocat 10) and EUR101.7m (Hipocat 11) 12 months ago. These factors led to the downgrade of the senior notes in Hipocat 10 and 11 to 'Bsf' and 'CCCsf', respectively.

Low Exposure to Payment Holidays
The exposure to payment holidays has decreased further to a range between 0.3% (Hipocat 5) and 1% (Hipocat 9 and 11) of the current pool. Fitch believes that this ratio is likely to diminish as most borrowers have fully utilised the available payment holiday period under the terms and conditions of the mortgage agreement.

In its analysis, the agency has associated more conservative default assumptions to these loans in order to factor the weaker borrower profile and found that the transactions were resilient to this stress.

RATING SENSITIVITIES
Recovery income beyond Fitch's stresses would trigger negative rating actions.

Consistent performance improvement beyond the agency's expectations would lead to positive rating actions.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by European Data Warehouse as of mid-June 2015 (Hipocat 6 and 8), mid-July 2015 (Hipocat 5, 7 and 9), end-July 2015 (Hipocat 10), and provided by CX Catalunya Caixa (Hipocat 11) as of beginning of July 2015.
-Transaction reporting provided by CX Catalunya Caixa as of end-June 2015 (Hipocat 6 and 8), end-July 2015 (Hipocat 5, 6, 7, 8, 9 and 11), end-August 2015 (Hipocat 10).

MODELS
The model below was used in the analysis. Click on the link for a description of the model.
EMEA RMBS Surveillance Model