London, 20 July 2012 -- Moody's Investors Service announced today that it has downgraded the rating
of the following notes issued by Vela Public Sector S.r.l.:
Issuer: Vela Public Sector S.r.l.
....EUR328.5M Class A2 Notes,
downgraded to Baa3 (sf) on review for possible downgrade; previously
on January 31, 2012, downgraded to Baa2 (sf)
This transaction is a static CLO of a portfolio of loans to Italian public
entities which closed in November 2004. Currently, the pool
includes exposures to Italian public debtors, mainly Municipalities,
Regions, Provinces, with the top five obligors representing
roughly 60% of the pool. About 20% of the current
portfolio is publicly rated by Moody's. Moody's has assessed the
creditworthiness through credit estimates and Q Scores.
For additional information on Structured Finance ratings, please
refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign
RATINGS RATIONALE
Moody's explained that the rating action taken today is driven by the
recent downgrade of relevant Italian sovereign and sub-sovereign
entities. Since 31 January 2012, when the Class A2 notes
were downgraded to Baa2(sf) , the Italian government and some of
the Italian sub-sovereign entities included in the portfolio have
been downgraded several notches . For more information please refer
to "Moody's downgrades Italy's government bond ratings to Baa2 from A3,
maintains negative outlook" published on the 13 July 2012 and "Moody's
downgrades Italian sub-sovereign ratings following sovereign downgrade"
published on 16 July 2012.
Moody's notes that about two thirds of the collateral pool consists of
loans whose credit quality has been assessed through Moody's credit estimates
and Q scores. As credit estimates and Q scores do not carry credit
indicators such as ratings reviews and outlooks, a stress of a one
notch-equivalent assumed downgrade was applied to each of these
estimates; moreover the credit estimates for three debtors in the
portfolio with exposures above 3% were stressed by 2 notches in
our base case scenario. Also, the quasi sovereign and sovereign
profile of the majority of the debtors who are all domiciled in Italy
leads to a 100% correlation assumption in our model.
In the process of determining the final rating, Moody's considered
a sensitivity model run where the ratings of the entire portfolio are
capped at Baa2, which is in line with the current Italian sovereign
rating. This run generated a model output consistent with the ratings
assigned today.
Moody's notes that the ratings on the notes are left on review for
possible downgrade awaiting updated data on the collateral pool as well
as revised credit estimates and Q scores.
Moody's notes that this transaction is subject to a high level of macroeconomic
uncertainty, which could negatively impact the ratings of the notes,
as evidenced by uncertainties of credit conditions in the general economy
especially as 100% of the portfolio is exposed to obligors located
in Italy. As the Euro area crisis continues, the rating of
the structured finance notes remain exposed to the uncertainties of credit
conditions in the European 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.
Furthermore, as discussed in Moody's special report "Rating Euro
Area Governments Through Extraordinary Times -- An Updated
Summary," published in October 2011, Moody's is considering
reintroducing individual country ceilings for some or all euro area members,
which could affect further the maximum structured finance rating achievable
in those countries.
The principal methodology used in this rating was "Moody's Approach to
Rating Corporate Collateralized Synthetic Obligations" published in September
2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology. Other factors used in this rating
are described in "Updated Approach to the Usage of Credit Estimates in
Rated Transactions" published in October 2009
In rating this transaction, Moody's used CDOROM to model the cash
flows and determine the loss for each tranche. The Moody's CDOROM™
is a Monte Carlo simulation which takes the Moody's default probabilities
as input. Each corporate reference entity is modelled individually
with a standard multi-factor model incorporating intra-
and inter-industry correlation. The correlation structure
is based on a Gaussian copula. In each Monte Carlo scenario,
defaults are simulated. Losses on the portfolio are then derived,
and allocated to the notes in reverse order of priority to derive the
loss on the notes issued by the Issuer. By repeating this process
and averaging over the number of simulations, an estimate of the
expected loss borne by the notes is derived. As such, Moody's
analysis encompasses the assessment of stressed scenarios
In addition to the quantitative factors that are explicitly modeled,
qualitative factors are part of the rating committee considerations.
These qualitative factors include the structural protections in each transaction,
the recent deal performance in the current market environment, the
legal environment, specific documentation features, the collateral
manager's track record, and the potential for selection bias in
the portfolio. All information available to rating committees,
including macroeconomic forecasts, input from other Moody's analytical
groups, market factors, and judgments regarding the nature
and severity of credit stress on the transactions, may influence
the final rating decision.
REGULATORY DISCLOSURES
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, public information, and confidential
and proprietary Moody's Investors Service 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.
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.
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.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Qian Zhu
Vice President
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Neelam S. Desai
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades 82m CLO notes of Vela Public Sector S.r.l.
