News Column

Fitch Rates La Hipotecaria Panamanian Mortgage Trust 2014-1 'AAAsf'

July 29, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings, effective as of July 28, 2014, to La Hipotecaria Panamanian Mortgage Trust 2014-1 and La Hipotecaria Twelfth Mortgage-Backed Notes Trust:

La Hipotecaria Panamanian Mortgage Trust 2014-1

--$56.25 million class A-1 certificates 'AAAsf', Outlook Stable.

La Hipotecaria Twelfth Mortgage-Backed Notes Trust

--$68.25 million series A notes 'BBBsf', Outlook Stable.

Fitch has also assigned the following rating effective as of today:

La Hipotecaria Panamanian Mortgage Trust 2014-1

--$4.5 million class A-2 certificates 'BBBsf', Outlook Stable.

The issuances are ultimately backed by a pool of residential mortgages originated by Banco La Hipotecaria, S.A. (La Hipotecaria) to lower-middle-income borrowers in the Republic of Panama. The series 2014-1 certificates benefit from a financial guaranty from Overseas Private Investment Corporation (OPIC). Fitch's ratings address timely payment of interest on a monthly basis and ultimate payment of principal by legal final maturity in September 2043.

KEY RATING DRIVERS

OPIC Guaranty: The timely payment of interest and ultimate payment of principal of the class A-1 certificates are guaranteed by OPIC, a U.S. agency backed by the full faith and credit of the U.S. (rated 'AAA' with a Stable Outlook by Fitch); this allows the certificates to reach 'AAAsf'.

Credit Enhancement: The series A notes benefit from 9% credit enhancement (CE) in the form of subordinated notes, an interest reserve account equivalent to 1% of the balance of the series A notes, and excess spread.

Sequential Pay Structure: The series A notes benefit from a sequential pay structure, where the target CE level is senior to interest payments and to the target principal payments on the series B notes.

Low Historical Loss Levels: Historical vintage data on La Hipotecaria's Panamanian mortgage portfolio indicate gross loss (+180 days) of around 2.5%, low compared to other Latin American mortgage markets. Approximately 87% of the portfolio benefits from a payroll deduction mechanism, which helps mitigate willingness to pay risk and contributes to low default levels.

Subsidy Expiration and Floating-Rate Mortgages: Approximately 73.5% of the mortgage pool benefits from Panama's Preferential Treatment Law, whereby the government provides lenders a subsidy for originating mortgages below market interest rates for a definite period of 10 or 15 years. Fitch stresses the 2.5% gross default level to derive a base case frequency of foreclosure (FoF) that reflects the portfolio's exposure to subsidy expirations as well as increases in the reference rate.

La Hipotecaria as Originator and Servicer: La Hipotecaria has developed expertise in originating and servicing low- to middle-income borrowers. La Hipotecaria has originated 11 RMBS transactions since 1999. Fitch-rated transactions have performed well and in line with expectations.

Sovereign Macroeconomic Performance: Panama's high growth rates since 2004 are a result of policy continuity centered on the expansion of the Panama Canal and the positioning of the country as a regional logistics hub. Fitch rates Panama 'BBB' and its country ceiling 'A'.

RATING SENSITIVITIES

The ratings assigned to the series A notes and class A-2 certificates are sensitive to changes in the credit quality of Panama. In addition, severe increases in frequency of foreclosures, prepayments and/or decreases in recovery rates could lead to rating downgrades.

The rating assigned to the class A-1 certificates is sensitive to changes in the credit quality of the U.S. sovereign, as OPIC is an agency of the U.S.

TRANSACTION SUMMARY

La Hipotecaria transferred approximately $75 million of eligible mortgages originated in Panama to the Twelfth Mortgage-Backed Notes Trust (the Panamanian trust). The Panamanian trust issued $68.25 million in series A senior notes, $6 million in series B mezzanine notes, and $75 million in series C subordinate notes. Fitch rated the series A senior notes, which benefit from 9% CE in the form of subordination.

Approximately $60.75 million of the $68.25 million series A notes was transferred to a U.S. grantor trust (the LH Delaware trust). The U.S. trust issued $56.25 million in class A-1 certificates, which are pass-through certificates that benefit from a financial guaranty from OPIC. The U.S. trust also issued $4.5 million in class A-2 certificates, which are pass-through certificates that do not benefit from a financial guaranty.

La Hipotecaria began operations in Panama as a specialty mortgage financing company in May 1997 and became a fully licensed bank under Panamanian law in June 2010. Since inception, La Hipotecaria and its operating subsidiaries have successfully specialized in mortgage origination to low- to middle-income borrowers.

For more details on the transactions, see Fitch's new issue report 'La Hipotecaria Panamanian Mortgage Trust 2014-1' and related representations and warranties appendix available shortly on Fitch's website.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for RMBS in Latin America' (February 13, 2014);

--'Global Structured Finance Rating Criteria' (May 20, 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2014);

--'Criteria for Rating Securitizations in Emerging Markets' (June 18, 2014).

Applicable Criteria and Related Research:

Criteria for Rating Securitizations in Emerging Markets

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749927

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821

Rating Criteria for RMBS in Latin America

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732815

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842454

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Gregory Lane, +1 312-606-2304

Associate Director

Fitch Ratings, Inc.

70 W. Madison St.

Chicago, IL 60602

or

Secondary Analyst

Santiago Toro, +571-326-9999 Ext. 1251

Analyst

or

Committee Chairperson

Maria Paula Moreno, +571-326-9999 Ext. 1210

Senior Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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