83 Italian ABS and RMBS ratings placed on review for downgrade
London, 02 August 2012 -- Moody's Investors Service has today downgraded to A2(sf) the ratings of
257 securities across 169 Italian asset-backed and residential
mortgage-backed securities (ABS and RMBS). Concurrently,
Moody's has also placed on review for downgrade the ratings of 83 Italian
ABS and RMBS securities (senior and subordinated notes) and confirmed
the ratings of four Italian RMBS securities.
Today's rating downgrades follow Moody's decision to lower the Italian
country ceiling to A2, in connection with the rating agency's
downgrade of Italy's government bond ratings to Baa2 from A3 on
13 July 2012.
The three main drivers for today's rating review placements were:
1) Moody's intention to reassess credit enhancement adequacy for each
of the rated notes, given the increased risk of economic and financial
instability
2) Moody's intention to assess the impact of strong linkage to counterparties
3) Moody's intention to assess the impact of increased set-off
risk, given the reduced likelihood of systemic support being available
for deposit-taking institutions, as a result of the sovereign
downgrade
As part of today's rating action, Moody's has concluded
its review of 23 ratings that were placed on review due to (1) their strong
counterparty linkage; or (2) the implementation of Moody's
revised approach on set-off risk in Italian structured finance
transactions. Moody's has concluded that the impact of the
linkage to the counterparty or the exposure to set-off risk is
already captured in the current rating of these notes.
Moody's will continue the review of ratings where the counterparty
linkage is not already captured in the current ratings of the notes.
Please click on this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_144512
for the list of affected credit ratings. This list is an integral
part of this press release. For a detailed rationale on each rating
action, please refer to the list of affected credit ratings.
For additional information on structured finance ratings, please
refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign.
RATINGS RATIONALE
--DRIVER FOR DOWNGRADE: NEW COUNTRY CEILING
On 13 July 2012, Moody's lowered to A2 the Italian country ceiling,
which signifies the maximum rating that Moody's will assign to a domestic
issuer, including structured finance transactions backed by Italian
receivables (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143384).
As a consequence, the highest achievable rating for Italian structured
finance transactions is now A2(sf), down from Aa2(sf) previously.
Italy's new country ceiling, as per the 13 July 2012 press release,
reflects Moody's assessment that the risk of economic and financial instability
in the country has increased. The weakness of the economy and the
increased vulnerability to a sudden cessation in funding for the sovereign
constitute a substantial risk factor to other (non-government)
issuers in Italy, as income and access to liquidity and funding
could be sharply curtailed for all classes of borrowers. Further
deterioration in the financial sector cannot be excluded, which
could lead to potentially severe systemic economic disruption and reduced
access to credit. Finally, the country ceiling reflects the
risk of exit and redenomination in the unlikely event of a default by
the sovereign. If the Italian government's rating were to fall
further from its current Baa2 level, the country ceiling would be
reassessed and likely lowered at that time.
-- FIRST DRIVER FOR REVIEW PLACEMENT: REASSESSMENT
OF CREDIT ENHANCEMENT ADEQUACY FOR SENIOR AND SUBORDINATED NOTES
Moody's has placed on review for downgrade the ratings of 76 Italian senior
and subordinated notes in order to reassess credit enhancement adequacy
levels, given the higher risk of economic and financial instability.
Italian securities placed on review for potentially inadequate credit
enhancement failed to meet the following credit enhancement thresholds:
- For securities rated in the A category: 10% for
RMBS, 15% for auto ABS, 20% for consumer ABS
and 22.5% for SME/small ticket lease ABS
- For securities rated in the Baa category or below: 7.5%
for RMBS, 12% for auto ABS, 15% for consumer
ABS and 20% for SME/small ticket lease ABS.
-- SECOND DRIVER FOR REVIEW PLACEMENT: STRONG LINKAGE
TO WEAKER COUNTERPARTIES
Moody's has also placed on review for downgrade the ratings of six
Italian securities with strong linkage to counterparties. The rating
agency will assess the degree of linkage by taking into account payment
disruption risk and the high exposure to swap providers or to issuer account
banks.
Among the 257 securities downgraded today, five tranches in four
transactions were maintained on review for downgrade as a result of payment
disruption risk linked to weak servicer and lack of sufficient mitigant
against operational risk. The affected deals are: Adriatico
Finance RMBS S.r.l. and Adriatico Finance SME S.r.l.,
which are both exposed to Banca Tercas (B3, on review for downgrade/NP);
Marche Mutui Societa per la Cartolarizzazione S.r.l.,
which is exposed to Banca delle Marche S.p.A. (Ba1/NP);
and Alta Padovana Finance S.r.l. - Series
2009, which is exposed to Banca Padovana Credito Cooperativo (Ba2/NP).
The class A of Alta Padovana Finance S.r.l. -
Series 2009 is also exposed to strong linkage to Banca Popolare Alto Adige-Suedtir.Volksb
(Ba1/NP), which is acting as swap counterparty.
The rating agency also maintained on review for downgrade the senior tranche
of Consumer One S.r.l., which was also today
downgraded to A2(sf), due to increased risk exposure to the issuer
account bank. This transaction has a strong linkage with the issuer
account bank, which was further downgraded on 16 July 2012 (Unicredit
Spa, Baa2/P-2).
During its review of these affected securities, Moody's will
reassess the impact of this strong linkage to counterparties.
--THIRD DRIVER FOR REVIEW PLACEMENT: INCREASED SET-OFF
RISK
Moody's has placed on review for downgrade the ratings of ten Italian
securities exposed to increased set-off risk following the reduced
likelihood of systemic support for Italian deposit-taking institutions
on the back of the sovereign downgrade.
Set-off risk affects securities backed by receivables from borrowers
who are also depositors of the originator. Following the insolvency
of an originator, borrowers may be able to set-off part of
their deposit against the outstanding balance of their loans. Set-off
risk increases when the likelihood of borrowers receiving deposit protection
decreases, which is directly linked to the government financial
strength.
Moody's most recently updated its approach to assessing set-off
risk in a report published on 8 June 2012 (http://www.moodys.com/research/Moodys-Updates-Approach-to-Set-Off-Risk-Analysis-for-Italian--PR_247343).
Among the ten notes exposed to increased set-off risk, nine
are also affected by the reassessment of the notes credit enhancement.
--CONCLUSION OF PREVIOUS RATING REVIEWS: COUNTERPARTY
EXPOSURE CONSISTENT WITH CURRENT RATING
As part of this action, Moody's concluded its review of 23
ratings that were placed on review due to (1) their strong counterparty
linkage; or (2) the implementation of Moody's revised approach
on set-off risk in Italy. Moody's has concluded that
the impact of the linkage to the counterparty or the exposure to set-off
risk is captured in the current rating of the notes.
Notes in Argo Mortgages S.r.l., Argo Mortgages
2 S.r.l., BPM Securitisation 2 Srl, Voba
Finance S.r.l., Fanes S.r.l.
and Casa D'Este Finance S.rl. II had been placed on
review in Q4 2011 due to payment disruption risk following the weakening
of the servicer and lack of strong operational risk mitigants for the
then current rating. Moody's has today downgraded the ratings
of these notes to A2(sf) due to the new country ceiling and considered
that the back-up servicing arrangement were sufficient for an A2(sf)
rating according to the rating implementation guidelines "Global
Structured Finance Operational Risk Guidelines: Moody's Approach
to Analyzing Performance Disruption Risk ", published in June
2011.
Notes in MondoMutui Cariparma S.r.l. and Argentario
Finance S.r.l., MALATESTA FINANCE S.R.L.
, Siena Mortgages 07-5 S.p.A.,
Siena Mortgages 07-5, Series 2 , Siena Mortgages 09-6
S.r.l. and Siena Mortgages 09-6 Series 2 S.r.l.
had been placed on review in March and May 2012, respectively,
due to strong linkage to swap counterparty. Moody's today
downgraded to A2(sf) the notes that were rated above the new ceiling and
confirmed the ratings of four subordinated tranches rated below A2(sf)
in three of these transactions. Moody's has assessed the
probability and impact of a default of the swap counterparty, including
the impact of the loss of any benefit from the swap and any obligation
the issuer may have to make a termination payment. This analysis
concluded with no further impact on the current ratings of these notes.
Notes in MondoMutui Cariparma S.r.l. and Impresa
ONE S.r.l. had been placed on review in March and
June 2012, respectively, due to the strong linkage to the
issuer account bank. Moody's today downgraded these notes
to A2(sf) due to the new country ceiling and has assessed the impact on
the revised rating of the linkage to the issuer account bank. In
particular, Moody's has assessed (1) the probability of a
default of the issuer account bank; (2) the impact of the loss of
any cash held by the issuer account bank should it default; and (3)
any loss that may be incurred after that time due to any delay in redirecting
payments to a new account or taking any other appropriate action.
Moody's concluded this analysis with no further impact on the revised
notes rating.
Moody's had placed on review notes in BPM Securitisation 2 Srl in
June 2012 following the implementation of the updated approach to set-off
risk in Italian structured finance transactions. Moody's
today downgraded these notes to A2(sf) due to the new country ceiling.
Moody's has analysed the impact of the lower likelihood of deposit
protection to borrowers on these notes and concluded with no further rating
impact on the revised rating.
On 2 July 2012, Moody's released a Request for Comment,
in which the rating agency requested market feedback on potential changes
to its rating implementation guidance for its "Approach to Assessing Linkage
to Swap Counterparties in Structured Finance Cashflow Transactions" and
for the temporary use of cash in structured finance transaction.
If the revised rating implementation guidance is implemented as proposed
for both related issues, the rating on these notes should not be
negatively affected. Please refer to both Moody's Requests
for Comment, entitled "Approach to Assessing Linkage to Swap Counterparties
in Structured Finance Cashflow Transactions: Request for Comment"
and "The Temporary Use of Cash in Structured Finance Transactions:
Eligible Investment and Bank Guidelines: Request for Comment" for
further details regarding the implications of the proposed methodology
changes on Moody's ratings.
PRINCIPAL METHODOLOGIES
Sovereign credit quality impacts structured finance and covered bonds
ratings primarily through the performance of underlying collateral and
the credit quality of counterparties, as detailed in the Rating
Implementation Guidance "How Sovereign Credit Quality May Affect Other
Ratings" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_139495).
Structured finance and covered bond securities benefit from revenue diversification,
credit enhancement and other structural features. As a result,
they can achieve higher ratings than other non-structured issuers
and may, where certain conditions are met, exceed the sovereign
by a limited number of notches, subject to the constraint of the
relevant country ceiling.
The purpose of the country ceiling (or 'guideline') is described in the
Rating Implementation Guidance "The Local Currency Deposit Ceiling" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_98554).
Moody's is considering reintroducing individual country ceilings for other
euro area members, which could further affect the maximum structured
finance rating achievable in those countries, as discussed in
Moody's special report "Rating Euro Area Governments Through Extraordinary
Times -- An Updated Summary" (http://www.moodys.com/research/Rating-Euro-Area-Governments-Through-Extraordinary-Times-Implications-of-
Spains--PBC_142756).
Moody's approach to set-off risk in Italian structured finance
transactions is described in the Rating Implementation Guidelines "Moody's
Approach to Set-Off Risk in Italian Structured Finance and Covered
Bonds Transactions", published 8 June 2012 ( http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF285617)
The rating considerations described in this press release complement the
principal rating methodologies applicable to each of the Italian ABS and
RMBS transactions affected by today's rating action (see link provided
above in this press release for a full list of affected credit ratings).
-- OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
As the euro area crisis continues, the ratings of 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.
Key modelling assumptions, sensitivities, cash-flow
analysis and stress scenarios for the affected transactions have not been
updated, as the rating actions have been primarily driven by (1)
the lowering of Italy's country ceiling; and, as a consequence,
(2) Moody's decision to assess credit enhancement levels consistent with
each structured finance rating category and assess the set-off
exposures of securities exposed to this risk.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_144512
for the list of each credit rating affected by a change in rating or review
status. This list is an integral part of this press release and
provides, for each of the credit ratings covered, Moody's
disclosures on the following items:
- Ratings Rationale
- Methodologies and Models Applicable
- Person Approving Credit Ratings, Lead Analyst
- Releasing Office
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.
Information sources used to prepare each of the ratings 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 then underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
Moody's considers the quality of information available on the rated entities,
obligations or credits satisfactory for the purposes of issuing these
reviews.
Moody's adopts all necessary measures so that the information it uses
in assigning the ratings 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 entities or their 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the Lead Analyst, Rating Analyst,
Person Approving Credit Ratings, and the office that has issued
the credit rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on 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.
Maria Divid
Analyst
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
Barbara Rismondo
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 to A2(sf) ratings of 257 Italian ABS and RMBS securities
