Moody's assigns A3 to covered bonds of former Banco CAM, following merger with Banco Sabadell

- Mortgage covered bonds (Cédulas Hipotecarias, CHs) issued by Banco CAM: withdrawn for reorganisation; previously A3, upgraded on 25 October 2012.

- Public-sector covered bonds (Cédulas Territoriales, CTs) issued by Banco CAM: withdrawn for reorganisation; previously A3, upgraded on 25 October 2012.

- CHs assumed by Banco Sabadell transferred from the former Banco CAM: A3, new rating assigned.

- CTs assumed by Banco Sabadell transferred from the former Banco CAM: A3, new rating assigned.

Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on www.moodys.com.

RATINGS RATIONALE

Today's rating actions follow the merger, effective as of 8 December 2012, of Banco CAM and Banco Sabadell. Following the merger, Moody's has withdrawn Banco CAM's standalone credit assessment and deposit ratings. The ratings on Banco CAM's debt instruments remain unchanged and have been transferred to Banco Sabadell.

For further information on the rating actions taken by Moody's Financial Institutions Group, please refer to "Moody's withdraws Banco CAM's Ba1/NP/E+ ratings" published on 10 December 2012.

Banco CAM's CHs and CTs ratings have been withdrawn. At the same time, the series that carry definitive ratings have been assigned new ratings because of the transfer of those assets to Banco Sabadell.

Moody's understands that the new cover pool backing Banco Sabadell's CHs represents the addition of Banco CAM's and Banco Sabadell's former total mortgage pools. Moody's also understands that the new cover pool backing Banco Sabadell's CTs represents the addition of Banco CAM's and Banco Sabadell's former total public-sector pools.

A covered bond benefits from (1) the issuer's promise to pay interest and principal on the bonds; and (2) if the issuer defaults, the economic benefit of a collateral pool (the cover pool). The ratings therefore take into account the following factors:

(1) The credit strength of Banco Sabadell (Ba1, deposits, negative; BFSR D/BCA ba2, negative).

(2) The value of the cover pool in the event of issuer default. The stressed level of losses modelled in event of issuer default (cover pool losses) for the CHs is 50.3%. The cover pool losses for CTs is 50%.

The analysis of the value of the cover pool considered:

a) The credit quality of the assets backing the covered bonds. The mortgage covered bonds are backed by Spanish commercial and residential mortgage loans. The collateral score for the mortgage cover pool is 35.1%. The public-sector covered bonds are backed by claims against Spanish public-sector entities or claims guaranteed by such entities. The collateral score for the public-sector cover pool is 40.3%. These figures are based on the amalgamated cover pool of the two merged entities.

b) The robust Spanish legal framework for CHs. CHs are issued by Spanish financial institutions, secured by the issuer's entire mortgage book and regulated mainly by the Spanish Mortgage Market Law and the Insolvency Law. The Spanish legal framework for CHs is characterised by (1) the fact that CH holders have a priority security claim over the bank's whole mortgage pool (the total cover pool); (2) the restriction on issuing CHs to a maximum of 80% of the portion of loans regarded as eligible mortgages (the eligible cover pool), which provides for a minimum 25% over-collateralisation (OC) for the purposes of issuance; and (3) the fact that CHs do not have to be accelerated because of insolvency proceedings.

c) The robust Spanish legal framework for CTs. CTs are governed mainly by the Law 44/2002, of 23 November, on the reform of the Financial System and the Insolvency Law, and are full-recourse direct corporate obligations of the issuing entity. Legal framework strengths include (1) that CT holders have a priority security claim over all the issuer's public-sector loans made in the European Economic Area (the cover pool); (2) the restriction on issuing CTs to a maximum of 70% of the cover pool, which provides for a minimum 43% OC; and (3) if the issuer becomes insolvent, the CTs do not have to be terminated or accelerated.

d) The exposure to market risk. The market risk for the mortgage cover pool is 26.8%.The market risk for the public-sector cover pool is 29.8%. These figures are based on the amalgamated cover pool of the two merged entities.

e) The OC in the mortgage cover pool is 119.6%, of which Banco Sabadell provides 25% on a "committed" basis (see Key Rating Assumptions/Factors, below). The OC in the public-sector cover pool is 94.1%, of which Banco Sabadell provides 42.9% on a "committed" basis (see Key Rating Assumptions/Factors, below).

The timely payment indicator (TPI) assigned to this transaction is "Improbable". This TPI constrains the rating of the covered bonds at its current level.

KEY RATING ASSUMPTIONS/FACTORS

Covered bond ratings are determined after applying a two-step process: an expected loss analysis and a TPI framework analysis.

EXPECTED LOSS: Moody's determines a rating based on the expected loss on the bond. The primary model used is Moody's Covered Bond Model (COBOL), which determines expected loss as (1) a function of the issuer's probability of default (measured by the issuer's rating); and (2) the stressed losses on the cover pool assets following issuer default.

For each set of covered bonds listed below, the cover pool losses are an estimate of the losses Moody's currently models if the relevant issuer defaults. Cover pool losses can be split between market risk and collateral risk. Market risk measures losses as a result of refinancing risk and risks related to interest-rate and currency mismatches (these losses may also include certain legal risks). Collateral risk measures losses resulting directly from the credit quality of the assets in the cover pool. Collateral risk is derived from the collateral score.

--- BANCO SABADELL'S CHs

The cover pool losses of Banco Sabadell CHs are 50.3%, with market risk of 26.8% and collateral risk of 23.%. The collateral score for this programme is currently 35.1%. These figures are based on the amalgamated cover pool of the two merged entities. The OC in this cover pool is 119.6%, of Banco Sabadell provides 25% on a "committed" basis. The minimum OC level that is consistent with the A3 rating target is 46.5%, of which 11.5% should be provided in a "committed" form. These numbers show that Moody's is relying on "uncommitted" OC in its expected loss analysis.

--- BANCO SABADELL'S CTs

The cover pool losses of Banco Sabadell CTs are 50%, with market risk of 29.8% and collateral risk of 20.1%. The collateral score for this programme is currently 40.2%. These figures are based on the amalgamated cover pool of the two merged entities. The OC in this cover pool is 94.1%, of Banco Sabadell provides 42.9% on a "committed" basis. The minimum OC level that is consistent with the A3 rating target is 50%, of which 7.1% should be provided in a "committed" form. These numbers show that Moody's is relying on "uncommitted" OC in its expected loss analysis.

For further details on cover pool losses, collateral risk, market risk, collateral score and TPI Leeway across covered bond programmes rated by Moody's please refer to "Moody's EMEA Covered Bonds Monitoring Overview", published quarterly. These figures are based on the latest data that has been analysed by Moody's and are subject to change over time.

TPI FRAMEWORK: Moody's assigns a "timely payment indicator" (TPI), which indicates the likelihood that timely payment will be made to covered bondholders following issuer default. The effect of the TPI framework is to limit the covered bond rating to a certain number of notches above the issuer's rating.

SENSITIVITY ANALYSIS

The robustness of a covered bond rating largely depends on the credit strength of the issuer. The TPI Leeway measures the number of notches by which the issuer's rating may be downgraded before the covered bonds are downgraded under the TPI framework.

The TPIs assigned to these programmes is "Improbable". The TPI Leeway for these programmes is limited, and thus any downgrade of the issuer ratings may lead to a downgrade of the covered bonds.

A multiple-notch downgrade of the covered bonds might occur in certain limited circumstances, such as (1) a sovereign downgrade negatively affecting both the issuer's senior unsecured rating and the TPI; (2) a multiple-notch downgrade of the issuer; or (3) a material reduction of the value of the cover pool.

On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.

RATING METHODOLOGY

The principal methodology used in these ratings was "Moody's Approach to Rating Covered Bonds" published in July 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

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Tomas Rodriguez-Vigil Associate Analyst Structured Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Juan Pablo Soriano MD - Structured Finance Structured Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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