London, 22 March 2012 -- Moody's Investors Service has today confirmed the Aa2(sf) rating of the
class A senior notes in Medioleasing Finance S.r.l.:
....EUR300M A Notes, Confirmed at Aa2
(sf); previously on Feb 21, 2012 Downgraded to Aa2 (sf) and
Remained On Review for Possible Downgrade
Today's announcement concludes the rating review of the transaction initiated
on 4 July 2011. This rating review was initially triggered by (i)
the worse-than-expected performance of the collateral and
deviation from Moody's initial expectations; (ii) credit enhancement
levels below those required to absorb higher-than-initially-expected
losses on the portfolio of assets; and (iii) a long revolving period,
which can last until April 2017.
The rating of the class B notes issued by Medioleasing Finance remains
Baa1(sf) on review for downgrade as their rating is linked to the rating
of their guarantor, Banca delle Marche (Baa1 on review for downgrade).
This review will be concluded once the rating review of Banca delle Marche
is concluded.
RATINGS RATIONALE
Today's confirmation reflects transaction amendments that increase
credit enhancement under the senior notes and accelerate the amortisation
of the notes, offsetting the effects of worse-than-expected
collateral performance. Following the amendments executed on 2
March 2012: (i) the reserve fund is to be increased to €60
million from €6.1 million by the next transaction payment
date in April 2012; (ii) the revolving period was changed to allow
for partial amortisation of the notes starting in April 2012, therefore
allowing for some deleveraging of the senior notes; and (iii) a back-up
servicer (BUS) facilitator has been appointed to mitigate operational
risk (see details below).
On 21 February 2012, the class A notes were downgraded from Aaa(sf)
to Aa2(sf), remaining on review for downgrade. This downgrade
followed the lowering of the highest achievable structured finance ratings
in Italy which was prompted by the downgrade of the sovereign rating of
Italy on 13 February 2012 (for more details, please refer to press
release "Moody's downgrades senior ABS, RMBS and CLO notes
exposed to Italy and Spain" on www.moodys.com).
--RESERVE FUND INCREASED
Since last October, cash collections have been partly set aside
to increase the reserve fund, which was initially set at €6.1
million. However, the target reserve fund amount is now €60
million (20% of class A notes balance), which should be reached
on the next payment date in April. The reserve fund will start
amortising next April, together with the class A notes, in
order to remain at a level equal to 20% of the class A notes'
balance. The amortisation amounts of the reserve fund will be used
to repay the senior notes. Following this reserve fund increase,
the credit enhancement below the class A notes is approximately equal
to 40.8%.
--NOTES TO START AMORTISING IN APRIL 2012
Transaction amendments also brought forward the amortisation of the class
A notes to April 2012 instead of April 2017. Starting on the next
payment date, 50% of the collections received from the pool
of assets will be used to repay the class A notes and, until April
2017, the other 50% will continue to be used to purchase
new assets. This mechanism allows for an earlier deleveraging of
the senior notes than was originally planned.
--BACK-UP SERVICER FACILITATOR APPOINTED
Banca delle Marche, the parent of Medioleasing was downgraded from
A3 to Baa1 in October 2011 and the Baa1 rating has been on review for
downgrade since 16 February 2012.
To mitigate operational risk linked to a potential servicing disruption,
Securitisation Services S.p.A. (not rated) is now
acting as back-up servicer (BUS) facilitator in this transaction,
in which Medioleasing acts as servicer. If the appointment of Medioleasing
is terminated, Securitisation Services S.p.A.,
who is also the representative of the noteholders, will use its
best efforts to find a substitute servicer. This is in addition
to the back-up servicer trigger at loss of Baa2 of the parent of
the servicer, which was already in place in the transaction.
The BUS facilitator is an independent company, specialised in managing
and monitoring securitisation transactions. The BUS identified
by Securitisation Services S.p.A. needs to have at
least three-years experience as servicer of lease receivables,
as well as IT systems compatible with those of the current servicer.
-- TRANSACTION DETAILS
Medioleasing Finance closed in May 2008. The portfolio comprises
three pools of Italian financial-lease contracts backed by auto,
equipment and real-estate assets. The securitised pool is
mainly exposed to real-estate contracts. The split between
the three sub-pools (as of the last reporting date in January 2012)
was 22% for equipment, 2% for auto and 76%
for real estate. During the revolving period real estate assets
should not exceed 85% of the total pool balance.
-- REVISED PERFORMANCE ASSUMPTIONS
Asset performance has been worse than Moody's initial expectations.
As of October 2011, total loans in arrears amounted to approximately
4.6% of the current portfolio balance. As of this
same date, cumulative defaults reached 8.8% of the
total securitised pool since closing. This compares with the expected
cumulative defaults of 7% over the life of the transaction assumed
at the closing date in 2008.
To reflect this deterioration, Moody's has reassessed its lifetime
default expectation for Medioleasing Finance's collateral pool.
This factored in the worse-than-expected collateral performance
to date and any likely further performance deterioration of the pool in
the current down cycle.
Moody's assumes the default probability of SME debtors to be in the low-Ba/high-B
range and estimates the remaining weighted-average life of the
current portfolio to be approximately five years. Consequently,
these revised assumptions have translated into a rise in the cumulative
mean default assumption for the current portfolio, equal to 18%
of the current portfolio balance. As the transaction is still revolving,
this increased default assumption implies a revised cumulative mean default
for the entire transaction (since closing) equal to 18% of the
original portfolio balance. This default assumption corresponds
to an equivalent rating of B1/B2 over the portfolio weighted-average
life.
Given the pool's relatively low granularity with an effective number of
381, Moody's used a Monte Carlo simulation to derive the gross default
distribution. As a result of the simulation, the coefficient
of the variation of the default distribution has decreased to 42%,
compared with 62.5% at the closing date.
Moody's assumes an average stochastic recovery rate of 45%.
The rating agency has also considered the potential effect of the originator
insolvency on the recoveries in the transaction. If the originator
became insolvent, Moody's would expect recoveries on defaulted lease
contracts to be approximately 15%.
--SENSITIVITY ANALYSIS
Moody's analysed various cumulative default rates to test the robustness
of the notes rating. For instance, an increase of the cumulative
default rate on the current balance to 19% from 18% (base
case) or an increase of the coefficient of variation to 52% from
42% (base case) would not result in a migration of the quantitative/model-indicated
rating outcome for class A notes. Also, a lower recovery
rate of 40% instead of 45% (base case) does not affect the
quantitative/model-indicated rating outcome for class A.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
The revised assumptions remain subject to uncertainties such as the future
general economic activity, and the evolution of the performance
of the transaction. If realised recovery rates were to be substantially
lower or default rates substantially higher than assumed, the rating
would be negatively affected .
The principal methodology used in this rating was Moody's Approach to
Rating Multi-Pool Financial Lease-Backed Transactions in
Italy published in June 2006. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
In reviewing this transaction, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted considering
the probabilities of the lognormal distribution assumed for the portfolio
default rate. In each default scenario, the corresponding
loss for each class of notes is calculated given the incoming cash flows
from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum product
of (i) the probability of occurrence of each default scenario; and
(ii) the loss derived from the cash flow model in each default scenario
for each tranche.
As the Euro area crisis continues, the rating of the structured
finance notes remain exposed to the uncertainties of credit conditions
in the general economy. The deteriorating creditworthiness of euro
area sovereigns as well as the weakening credit profile of the global
banking sector could negatively impact the ratings of the notes.
For more information please refer to the Rating Implementation Guidance
published on 13 February 2012 "How Sovereign Credit Quality May Affect
Other Ratings". Please also refer to the recent rating actions
on banks published on 15 February 2012, (please see "Moody's Reviews
Ratings for European Banks" and "Moody's Reviews Ratings for Banks and
Securities Firms with Global Capital Markets Operations" for more information).
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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, confidential and proprietary MIS
information and public information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Anne-Sophie Spirito
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
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Moody's confirms Aa2(sf) rating of Medioleasing Finance class A notes, Italian lease ABS
