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Announcement:

Moody's reviews for downgrade European RMBS transactions with exposure to downgraded issuer account banks and lack of remedial actions

Global Credit Research - 14 Nov 2012

London, 14 November 2012 -- Moody's Investors Service has today placed on review for downgrade the ratings of Aaa (sf) and Aa (sf)-rated residential mortgage-backed securities (RMBS) that have increased counterparty risk arising from (1) indirect linkages to issuer account banks that were downgraded below Prime-1 during Q2 2012; and (2) the lack of structural protection to reduce their linkages to these downgraded banks. Today's rating announcement affects 38 tranches in 20 RMBS transactions.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF306978 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

This follows Moody's earlier announcement "Impact of bank credit deterioration on structured finance will vary with degree of bank exposure", which was published on 15 May 2012.

RATINGS RATIONALE

Today's rating announcement reflects Moody's assessment that the exposure of RMBS tranches to certain financial institutions acting as issuer account banks is most likely no longer compatible with the outstanding ratings of those highly rated tranches. In the RMBS affected by today's downgrades, the issuer account bank was downgraded by Moody's several months ago and since then no replacement has been nominated. The review is focused on the highest rated securities in these transactions that have a substantial amount of cash exposed to weaker issuer account banks. These are transactions in which a substantial portion of the credit enhancement, arising from either principal collections or a reserve fund, is deposited in issuer accounts before being paid to investors.

Specifically, Moody's placed on review (1) the Aaa (sf)-rated securities exposed to issuer account banks rated below A1 or Prime-1; and (2) the Aa (sf)-rated securities exposed to issuer account banks rated below A2 and Prime-1 in line with Moody's current rating criteria for issuer account banks. Furthermore, for Aa3 (sf)-rated securities, Moody's also considered the credit enhancement available to protect against a default of an issuer account bank. The rating agency did not place on review the Aa3 (sf)-rated notes that benefited from a relatively large source of credit enhancement outside of the reserve fund.

If effective protections mechanisms are implemented the affected ratings may be confirmed subject to Moody's satisfactory review.

Moody's current criteria for rating Aaa and Aa-rated securities are detailed in the rating guidance entitled "The Temporary Use of Cash In Structured Transactions: Eligible Investment Guidelines", published in December 2008.

FOCUS OF THE REVIEW

Moody's rating review will consider the magnitude of payment disruptions in the event that the issuer account bank fails to meet its obligations, as well as any effective protection mechanisms that may reduce this disruption. Any negative rating action will reflect the magnitude of this payment disruption, the counterparty rating and the rating of the exposed security.

OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES IN FUTURE

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.

An additional factor that may affect the resolution of these reviews is the request for comment published on 2 July 2012, "The temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines".

Key modelling assumptions, sensitivities, cash-flow analysis and stress scenarios for the affected transactions have not been updated as the rating announcement has been primarily driven by the assessment of counterparty exposure.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF306978 for the List of Affected Credit Ratings. 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:

• Methodologies and Models used

• Person approving the credit rating

• 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, parties not 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 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.

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.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Panayiota Koulafetis
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

Annick Poulain
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Lyudmila Udot
Analyst
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 reviews for downgrade European RMBS transactions with exposure to downgraded issuer account banks and lack of remedial actions
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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