CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the following Eleventh Mortgage-Backed Notes Trust's (Eleventh Trust) notes:
--$37.8 million series A senior notes to 'BB+sf' from 'BBB-sf'.
The Outlook is revised to Negative from Stable.
Fitch's rating addresses the timely payment of interest on a monthly basis and ultimate payment of principal by legal final maturity in October 2041.
KEY RATING DRIVERS
The rating action reflects the recent downgrades of El Salvador's foreign currency issuer default rating (FC IDR) to 'BB-' with a Negative Outlook and country ceiling (CC) to 'BB+' from 'BBB-'.
According to Fitch's 'Criteria for Rating Securitizations in Emerging Markets' (June 2013), the ratings of emerging market securitizations can be above the sovereign IDR and CC. While this transaction has sufficient credit enhancement to be rated above the country's FC IDR, the rating of the transaction continues to be linked to the ratings of El Salvador.
The transaction contains some liquidity to mitigate potential transfer risk, but this level is not sufficient to provide significant rating benefit to breach the CC. Additionally, Fitch believes the macroeconomic environment to be more volatile as the sovereign rating levels are decreased. When rating a transaction above the IDR of a country the transaction must have sufficient credit enhancement to withstand an increase in risk within the macroeconomic environment.
The transaction was stressed using a 6.0x historical default rate which is sufficient to go up to the CC or 2 notches above the FC IDR. Due to the sovereign downgrade Fitch no longer believes the 6.0x multiple is sufficient to maintain the 'BBB-'.
The Outlook revision reflects the Negative Outlook maintained on the El Salvador's FC IDR, which indicates continued uncertainty over growth and fiscal consolidation prospects in the coming years.
RATING SENSITIVITIES
The rating of the series A notes is sensitive to changes in the credit quality of El Salvador. A further downgrade of El Salvador's ratings, specifically its country ceiling ('BBB+'), could lead to a downgrade on the notes. In addition, severe increases in frequency of foreclosure and prepayments as well as reductions in recovery rates could lead to a downgrade of the notes.
Initial Key Rating Drivers and Rating Sensitivity are further described in the new issue report 'La Hipotecaria El Salvadorian Mortgage Trust 2013-1' published April 25, 2013.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for RMBS in Latin America (Feb. 13, 2013);
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013);
--'Criteria for Rating Securitizations in Emerging Markets' (June 27, 2013);
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' (April 17, 2012);
--'La Hipotecaria El Salvadorian Mortgage Trust 2013-1' (April 25, 2013);
--'La Hipotecaria El Salvadorian Mortgage Trust 2013-1; Representations and Warranties' (April 25, 2013).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797123
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