Page 1 of 8. Transaction Profile. Transaction Key Features. Supporting Ratings. Publication Date: June 2, 2005 RMBS Covered Bonds Presale Report

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1 Publication Date: June 2, 2005 RMBS Covered Bonds Presale Report IM Cédulas 5, Fondo de Titulización de Activos 1.25 Billion Fixed-Rate Notes Analysts: Enrique Blázquez, Madrid (34) and José Ramón Torá, Madrid (34) , Surveillance analyst: Sean Hannigan, London (44) , This presale report is based on information as of June 2, The credit rating shown is preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of a final credit rating that differs from the preliminary credit rating. For further ratings information, call one of the following Standard & Poor's numbers: London Client Support Desk (44) ; London Press Office Hotline (44) ; Paris (33) ; Frankfurt (49) ; Stockholm (46) ; or Moscow (7) Members of the media may also contact the European Press Office via on: media_europe@standardandpoors.com. Investors are invited to call the SF Investor Hotline on (44) Class Preliminary credit rating* Preliminary amount (Bil. ) Interest (%) Legal final maturity A AAA 1.25 Fixed rate to be determined June 10, 2022 *The rating on the securities is preliminary as of June 2, 2005 and is subject to change at any time. A final credit rating is expected to be assigned on the closing date subject to a satisfactory review of the transaction documents and legal opinion, and completion of a corporate overview. Standard & Poor's rating addresses timely interest and ultimate principal. Mortgage covered bonds issuers and servicers Underwriters Arranger Bank account provider GIC provider Liquidity facility provider Seller Trustee Transaction Profile Seven Spanish financial institutions: Caja Laboral Popular, Banca March, Caja España de Inversiones, Caja de Ahorros y Monte de Piedad, Banco de Valencia S.A., Caixa Terrasa, "Sa Nostra" Caixa de Balears, Caixa Girona HSBC PLC; IXIS Corporate & Investment Bank; Bayerische Hypo-und Vereinsbank AG. InterMoney Titulización, S.G.F.T., S.A Banco Popular Español, S.A. Banco Popular Español, S.A IXIS Corporate & Investment Bank InterMoney Sociedad de Valores Bolsa, S.A. InterMoney Titulización, S.G.F.T., S.A. Transaction Key Features Expected closing date June 15, 2005 Collateral Seven "cédulas hipotecarias" (mortgage covered bonds or CHs). Each CH is backed, together with any other outstanding CHs issued by the same issuer, by the entire mortgage portfolio of the entity that issued it Principal outstanding (Bil. ) 1.25 Country of origination Spain Redemption profile Bullet maturity Liquidity line (percentage of the total 3.37 amount issued based on a 15-year cédula coupon of 3.76%) Institution/role Banco Popular Español, S.A. as bank account provider and GIC provider IXIS Corporate & Investment Bank as liquidity facility provider Supporting Ratings Ratings AA/Negative/A-1+ AAA/Negative/A-1+ Page 1 of 8

2 Transaction Summary A preliminary 'AAA' credit rating has been assigned to the "bonos de titulización" (notes) to be issued by IM Cédulas 5, Fondo de Titulización de Activos, which are backed by a portfolio of seven "cédulas hipotecarias" (mortgage-covered bonds; CHs). The rating reflects the quality of the underlying collateral as well as the structural enhancements included, mainly the liquidity line provided by IXIS Corporate & Investment Bank. The collateral will consist of CHs from five savings banks and two banks. Each CH, together with all other outstanding CHs from the same mortgage covered bonds issuer (CH issuer), is backed by the mortgage loan books of the financial entity that issued it. IM Cédulas 5 will issue the notes and use the proceeds to buy these CHs through the seller. The CHs will match the amount, interest, and maturity of the notes. Notable Features This is the fifth securitization of CHs to be structured by InterMoney Titulización, S.G.F.T., S.A. The structure is similar to previous transactions, except for the structure of the liquidity line, which will expire on the legal maturity date but will be fully repaid on the expected final maturity of the transaction. Standard & Poor's analysis took into account the ultimate recovery on the CHs and the time needed for recovery, based on the protection offered by the underlying collateral in the event of a CH defaulting. Strengths, Concerns, And Mitigating Factors Strengths The credit quality of the CHs is good given the current overcollateralization levels. Each CH in the transaction benefits from high overcollateralization levels provided by the entire mortgage book of each of the CH issuers. Current overcollateralization levels, based on the mortgage book for the CHs to be purchased by IM Cédulas 5, range from 2.2x to 5.1x. The average is 3.8x (see "Collateral Description"). A liquidity line will be in place from the closing date to guarantee timely payment of interest and extraordinary expenses if any of the CHs default. The cash flows from the assets and liabilities in the transaction are fully matched. The fixed rate coupon of the assets will be 1 bp higher than that of the notes issued by IM Cédulas 5, to pay all ordinary expenses of the transaction. Concerns A CH may default if its issuer goes insolvent and cash flows produced by the underlying collateral are not sufficient to meet CH payments. IM Cédulas 5 may consequently have to enforce the collateral backing the CH. This would imply a default on interest on the notes and the need to pay extraordinary expenses during the enforcement process. The rating on the notes relies on the levels of overcollateralization of the CHs issued. As this form of funding becomes more popular and more CHs are issued directly into the market or into structured finance transactions, overcollateralization levels for each recurrent CH issuer are decreasing. Although this transaction has been based on CHs with adequate overcollateralization for a 'AAA' rating and it includes minimum levels of overcollateralization, future issuance of CHs by some of the transaction's CH issuers might decrease the available collateral. There could be a change in the overcollateralization levels, which could have a negative effect on the quality of CHs. The assumption of full recovery of principal and interest on the CHs is based on the quality of the collateral (the mortgage loan book) at the time of issuance. As CHs are guaranteed by a revolving pool of mortgage loans, overcollateralization levels change over the life of the notes, depending on the growth of the issuing entity's mortgage book, additional issuance of CHs or mortgage bonds, and use of other securitization techniques at each Standard & Poor s Page 2 of 8

3 institution. Overcollateralization can also change as a result of a change in underwriting standards and the credit-risk management of the financial entities. There is no industry diversification because CHs are secured bonds issued by Spanish financial institutions. Mitigating factors The liquidity line provided by IXIS Corporate & Investment Bank covers delays of interest payments until the expected final maturity date of the notes and any extraordinary expenses that may occur. In sizing the liquidity line, various interest payment interruption periods were assumed, according to the estimated time and complexity of the workout period of a troubled institution. Extraordinary expenses were also taken into account. Nevertheless, if any CHs default near the expected final maturity date, part of the recovery process could take place between expected and final legal maturity. During that period, the structure provides for interest on the outstanding bonds to be paid when and as recoveries are received, as opposed to annually, which is the case during the life of the transaction before that period. Minimum required overcollateralization levels guarantee that, if a CH defaults, there will be enough collateral to assure full recovery of interest and principal. Standard & Poor's will closely monitor the available collateral of each financial entity throughout the entire life of the transaction. Standard & Poor's will continue to perform individual surveillance on the CHs issued by each individual CH issuer. If decreasing overcollateralization levels were to approach the minimum required levels, CH issuers would be alerted. Each financial institution occupies a market niche concentrated in its region where it is domiciled. A 15% default correlation between the financial entities has also been considered in Standard & Poor's default model. Transaction Structure The CHs will be issued by the CH issuers, seven Spanish financial entities. They will be subscribed by the seller, InterMoney Sociedad de Valores Bolsa S.A., which will then sell the newly acquired CHs to IM Cédulas 5 (see chart). Standard & Poor s Page 3 of 8

4 IM Cédulas 5 will in turn issue 'AAA' rated notes with a principal amount equal to the sum of the individual principal amounts of the seven CHs. All individual CHs will have the same terms and conditions, including coupon rate, payment date, and legal maturity. Scheduled maturity will be 15 years and there will be a single bullet payment at that date. Payments on the CHs will be made two working days before the payments on the notes to avoid administrative cash flow mismatching. If there is any claim by noteholders on the maturity date, the legal maturity of the notes will be extended by two years. This will give the fund manager time to proceed, on behalf of the noteholders, with any actions needed to settle their claims. Roles Of The Parties The CH issuers The seven CH issuers have already participated in several multi-originator transactions, most of them in recent transactions. All CH issuers have been assigned credit estimates. IM Cédulas 5, Fondo de Titulización de Activos (issuer) The issuer, IM Cédulas 5, is a "fondo de titulización de activos" created for the sole purpose of purchasing CHs from the sellers, issuing the notes, and carrying on related activities. The issuer will lack legal personality but will represent a distinct and closed pool of assets available for distribution to the noteholders. InterMoney Titulización,SGFT, S.A.(fund manager) The fund manager is InterMoney Titulización. The creation of the fund manager was authorized by the Ministry of Economy and Treasury in November In accordance with Spanish mortgage securitization legislation, the day-to-day operations of the issuer will be managed by a fund manager, who will represent and defend the interests of the noteholders. The fund manager, on behalf of the issuer, will enter into certain contracts needed to protect the issuer against certain credit losses and liquidity shortfalls assumed to arise in connection with holding the CHs. In this transaction, the main responsibilities of the fund manager are to create the issuer, issue the notes, notify noteholders of information applicable to the notes and CHs, manage the disposal of the liquidity line, and pay the issuer's fees and expenses. Note Terms Interest will be paid annually after the closing date, starting on the first anniversary and until the expected maturity date. Unless redeemed earlier, the notes will be redeemed at their maturity 15 years after closing. Redemption of principal will take place in full on the final maturity date. The legal final maturity date will be the 17th anniversary of the closing date, two years after the expected maturity date, without prejudice to the possibility of early redemption. Redemption of note principal may not take place later than the 17th anniversary of the closing date. IM Cédulas 5 may be subject to liquidation before the legal maturity date of the notes for the reasons established in Article 11 of Royal Decree 926/1998, and in particular if: In the opinion of the fund manager, exceptional circumstances have arisen that make it impossible, or extremely difficult, to maintain IM Cédulas 5's financial viability; A default has occurred that indicates a serious and permanent imbalance with respect to one of the securities issued; or The fund manager is declared to be in liquidation, temporary receivership, or bankruptcy, or its authorization is revoked and in the next four months no new fund manager is designated. Standard & Poor s Page 4 of 8

5 Early liquidation will take place only if there are sufficient funds to pay in full the outstanding principal and accrued interest on the notes. Partial redemption of the principal of the notes may occur if a CH issuer chooses to buy back the CHs it issued from IM Cédulas 5. CHs Legal Framework Under Spanish legislation, CHs enjoy a preferential claim over the secured assets. This preferential claim, coupled with the high degree of overcollateralization of CHs, increases the probability of recovery on these instruments, compared with the financial institution's unsecured obligations. Since the new Spanish insolvency law became effective in September 2004, CHs have not been subject to payment interruption in the event of an entity's insolvency. This means that the creditworthiness of these instruments now has a weaker link to the issuing entity. Overcollateralization requirements Eligible mortgage loans serving as collateral for CHs must comply with, among others, the following Spanish mortgage market law requirements: The loan must have a maximum LTV ratio of 80% in the case of residential property and 70% in the case of commercial property. The loan must be guaranteed by a first-lien mortgage. The underlying real estate must be the property of the mortgage debtor. Insurance must be taken out on the asset for the full valuation amount. The legal limit of CH issuance must be least 1.11x of the CH issuer's eligible mortgage portfolio. All mortgage portfolios (eligible and non-eligible) of the CH issuer provide overcollateralization to the CH. Since not all the mortgages on the individual financial entities' mortgage books are eligible under the issuance limits, collateral exists in excess of 1.11x of outstanding CHs (although non-eligible mortgages would obviously be considered lower-quality collateral). According to the mortgage market law and Royal Decree 685/1982, should any of the financial entities exceed the legal limits for CH issuance at any time during the life of the CHs already issued, the entity must restore the balance by: Depositing cash or government securities at Banco de España, the Spanish central bank; Acquiring mortgage bonds in the market; Extending new mortgage loans; or Redeeming the CHs by the amount needed to restore the balance. The CH issuers have five days to decide which options to pursue. However, should the first three options fail to restore the balance, the financial entities will ultimately make a firm offer to buy back the CHs issued by them from IM Cédulas 5. Collateral Description The pool is made up of seven individual CHs issued by seven different financial entities. The total amount is 1.25 billion. The minimum ratio of mortgage book to total value of CHs is 2.2x (Caixa Terrassa) and the maximum is 5.1x (Banca March) (see table). Summary of Mortgage Portfolio and CHs Name of the seller Value of Eligible Total value of New Value of Value of mortgage portfolio CHs issued issuance of mortgage eligible book (Mil. ) /mortgage (Mil. ) CHs for IM book /total portfolio /total book (%) Cédulas 5 value of CHs value of CHs (Mil. ) (x) (x) Caja Laboral Popular 6, , Banca March 2, Caja España 6, , Banco de Valencia 4, , Caixa Terrassa 3, , "Sa Nostra" Caixa de Balears 3, Caixa Girona 2, TOTAL 30, ,466 1, Minimum Maximum Average Standard & Poor s Page 5 of 8

6 Current overcollateralization levels in this transaction fully mitigate the nonrecovery of principal and interest upon the insolvency of the financial entities. There is no guarantee that the amount and quality of collateral will not deteriorate during the life of this transaction. The analysis is always affected by changes in the financial entities' underwriting standards and credit risk management. Liquidity Line A liquidity line will be provided by IXIS Corporate & Investment Bank. It will be divided into two specific amounts, one to cover interest and ordinary expenses if a CH defaults, and the other to cover extraordinary expenses that might be incurred to enforce the collateral of a defaulted CH. Penalty interest on the CHs will cover the interest on the disposal of the liquidity line plus a variable margin. The liquidity line will only be used if a default in one or several CHs means that there are not enough available funds to pay noteholders. If an issuer defaults on its CH, the liquidity line will have to be drawn and will be senior to the redemption of the notes in the priority of payments when the defaulted CH is recovered. The initial full amount of the liquidity line will be available for drawings only until the expected final maturity date. After the final maturity date, if there is any principal outstanding due to any CHs defaulting, the liquidity line will be only available to cover extraordinary expenses. The liquidity line drawn to pay interest on the notes and the line s accrued interest will be repaid on the expected final maturity date senior to the principal of the bonds. As a result of these payments, part of the principal due could therefore be paid when recoveries happen instead of at the expected maturity date. Also, after the expected final maturity date, interest will continue being accrued if there is any outstanding principal, but will be paid as and when recoveries are received. Under current overcollateralization levels, Standard & Poor s is comfortable that there will be full recovery of principal and interest before the legal maturity date. Methodology For Sizing The Liquidity Line In sizing the liquidity line, the calculation relies on a full recovery of principal and interest of the defaulted CH. Maximum liquidity line amount available to cover interest The amount of interest not collected due to the payment interruption of a CH is a function of the principal of each CH, the time needed to recover the full principal after default, and the fixed interest rate payable on the notes. It will be priced at closing. Different recovery times were assumed, according to the estimated complexity of the workout of a troubled institution. For example, for those entities assumed to take two years to fully recover the principal outstanding of the CH, the amount of nonpayment of interest is equal to the product of (i) the principal amount of the CH purchased at closing by IM Cédulas 5, (ii) the recovery time (i.e., two years), and (iii) the fixed interest rate payable on the notes. This exercise has been replicated for each financial entity by changing the principal of the CH and the time to recover the full principal amount. The amount being covered in this example will be equal to two years of interest of the relevant CH for the amount issued by that institution. Default rate This analysis gives the potential total amount of interest payment interruption for all the CHs. However, not all the financial entities will default during the life of the transaction. To size the default rate, Standard & Poor's used CDO Evaluator. The default rate of the pool was calculated using: Issuer credit ratings, either public or estimated; The amount of the defaulted interest of each CH; The maturity of each CH (15-year bullet); and A correlation factor of 15%. As CHs are no longer subject to payment interruption in the event of the financial institution's insolvency, the creditworthiness of the pool is only indirectly linked to the rating on the financial entity. Since the default rate, among other things, depends on the Standard & Poor s Page 6 of 8

7 amount of the defaulted interest of each CH, the default rate is very sensitive to the fixed coupon of the notes, which will be determined at closing. Based on a CH coupon of 3.76% for a 15-year maturity note, the maximum liquidity line amount to cover interest will amount to million, or 3.37% of the issuance size, or 44.81% of two years' of CH interest payments. The final amount will be determined at closing. Maximum liquidity line amount to cover extraordinary expenses The maximum liquidity line amount to cover extraordinary expenses will be 1.5 million, or 0.12% of the issuance size. Priority of Payments On each payment date, the fund manager will allocate the available funds in the following order: Taxes and expenses; Interest on the notes; Liquidity line remuneration, when applicable; Repayment of liquidity line, when applicable; and Amortization of the notes (bullet payment). Treasury Account And Liquidity Line Downgrade Language There is adequate downgrade language in place for both the liquidity line provider and the treasury account provider, with downgrade triggers below the 'A-1+' and 'A-1' levels, respectively. Surveillance Details Standard & Poor's will regularly monitor the transaction to ensure that the overcollateralization levels of the financial institutions do not fall below a minimum. Continued surveillance will be maintained on the transaction until the notes mature or are otherwise retired. To do this, regular fund manager reports detailing the performance of the underlying collateral will be analyzed, supporting ratings monitored, and regular contact made with the arranger and the fund manager to ensure that minimum standards are being maintained and that any material changes are communicated and assessed. Standard & Poor s Page 7 of 8

8 Criteria Referenced "Rating Methodology For Spanish Covered Bonds Considers Enhanced Post- Insolvency Treatment" (published on April 19, 2005). "Approach To Rating European Covered Bonds Refined" (published on Oct. 16, 2003). Related Articles "Spain Embraces Structural Diversity in the Securitization of Covered Bonds" (published on Dec. 2, 2004). "Stellar Growth In Spanish Securitization To Help It Maintain Europe's Number Two Slot" (published on June 2, 2004). "New Issue: IM Cédulas 4, Fondo de Titulizacion de Activos" (published on Feb. 24, 2005). All criteria and related articles are available on RatingsDirect, Standard & Poor's Webbased credit analysis system, at The criteria can also be found on Standard & Poor's Web site at Group Address Published by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY Editorial offices: 55 Water Street, New York, NY Subscriber services: (1) Copyright 2005 by The McGraw-Hill Companies, Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by Standard & Poor's from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Standard & Poor's or others, Standard & Poor's does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from the use of such information. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. Standard & Poor s Page 8 of 8