OREANDA-NEWS. Fitch Rating has upgraded Caixa Penedes PYMES 1 TDA, FTA's class A notes and affirmed the class B and C notes, as follows:

Class A notes (ISIN ES0357326000): upgraded to 'AA+sf' from 'AAsf'; Outlook Stable
Class B notes (ISIN ES0357326018): affirmed at 'BBsf', Outlook revised to Stable from Negative
Class C notes (ISIN ES0357326026): affirmed at 'CCCsf', RE25%

The transaction is a granular cash flow securitisation of a pool of secured and unsecured loans granted to Spanish small- and medium-sized enterprises by Caixa Penedes (now part of Banco Mare Nostrum) and is now serviced by Banco de Sabadell. The ratings are capped at 'AA+sf', which is the rating cap for Spanish structured finance transactions.

KEY RATING DRIVERS
The upgrade of the class A notes to the rating cap reflects the improved recovery prospects on defaulted assets and the increase in credit enhancement following the substantial amortisation of the senior notes. At last review Fitch considered the uncertainty surrounding the timing of recovery proceeds a limiting factor with the recovery lag assumption revised to 10 years from five years. Recoveries have since improved, with EUR1.7m received over the past six months compared with EUR0.7m in the previous two years. During this year, the class A notes have been paid down by EUR44m and are currently 5.75% outstanding with credit enhancement of 64% compared with 47% at last review.

There have been EUR5.2m of defaults during the past year with long-dated delinquencies surpassing the 18-month default definition but short-term delinquencies have shown significant improvement. The structure has interest deferral triggers for the class B and C notes. Interest will be deferred if cumulative defaults exceed 9.4% and 7% of their original collateral balance, respectively. Cumulative defaults are currently 6.45% of the initial portfolio balance and so the transaction is close to breaching the class C interest deferral trigger.

The class B notes have benefited from the amortisation of the senior notes with credit enhancement rising to 22% from 17% at last review. With a better outlook on the timing of recovery proceeds and an improving cure rate the class B notes have been affirmed and their Outlook revised to Stable.

The class C notes remain vulnerable to default and following additional drawdown of the reserve fund credit enhancement has fallen to 3.5% from 4.1%. The notes are sensitive to further defaults but could benefit if recoveries continue to improve.

Payment Interruption Risk
Despite the drawdown on the reserve fund it remains adequate to cover for more than six months of senior interest plus swap payment and so payment interruption risk is mitigated.

RATING SENSITIVITIES
Fitch has incorporated a recovery stress test in its analysis to determine the ratings' sensitivity to the lower recovery prospects assuming no recoveries from unsecured loans. Given the small proportion of unsecured loans the impact is marginal and we do not view it as material to the ratings of the notes.

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 pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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
- Investor reports from Titulizacion de Activos
- European Data Warehouse pool cut dated 31 May 2015.