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Rating Action:

MOODY'S DOWNGRADES SEVERAL CLASSES OF EUROHYPO'S PROVIDE GEMS 2002-1 PLC TRANSACTION

24 Mar 2004
MOODY'S DOWNGRADES SEVERAL CLASSES OF EUROHYPO'S PROVIDE GEMS 2002-1 PLC TRANSACTION

Approximately EUR 81 Million of Debt Securities Affected.

Frankfurt, March 24, 2004 -- Moody's Investors Service has today downgraded the following Classes of Notes of Provide Gems 2002-1 plc, a German RMBS securitisation. The detailed rating action is as follows:

- EUR 38,000,000 Class C Credit-Linked Notes, from A1 to A3;

- EUR 29,000,000 Class D Credit-Linked Notes, from Baa2 to Ba3;

- EUR 14,000,000 Class E Credit-Linked Notes, from Ba2 to B3.

This rating action concludes the review of the Notes which was initiated in June 2003 and led to a first downgrade in September 2003.

Moody's rating action was prompted by (1) the current reported level of credit events totaling 4.25 per cent as a percentage of the initial portfolio balance as of February 2004; (2) the high roll rates of delinquent loans migrating from the over 90 days delinquency bucket into credit events and (3) Moody's expectation of relatively high loss severities for this portfolio of second lien mortgage loans. Based on a current pool analysis, the assessment of already reported credit events and an operations review at Eurohypo, Moody's has doubled the expected loss assumption for the securitised portfolio compared to its first re-assessment in September 2003.

Moody's notes that no actual losses have been realised to date, the first loss piece remains available in full and that the total delinquency trend has flattened over the last 7-8 months reflected in a more moderate increase from 10.7 per cent in August 2003 to 11.2 per cent in February 2004. However, Moody's believes that there is a significant loss potential inherent in the 90+ delinquency bucket (6.99 per cent) relative to the already reported credit events totaling 4.25 per cent (all numbers stated as a percentage of the initial pool balance).

In line with its rating approach to German RMBS, Moody's recognises that the defaulted reference claims show an above average loan size, resulting in a significant deviation when comparing the number of credit events (2.57 per cent) and outstanding balance of credit events (4.25 per cent). In Moody's view, the higher than expected level of credit events is driven primarily by certain portfolio characteristics: (1) Investment properties (approx. 39 per cent of the initial portfolio); (2) Self-employed borrowers (approx. 30 per cent); and (3) High defaults in the less seasoned 2000 to 2002 vintages representing about 46 per cent of the initial portfolio. Taking further into account the relatively broad "failure to pay" credit event definition for this transaction, Moody's anticipates higher levels of credit events for Provide Gems 2002-1 than for many other comparable synthetic German RMBS transactions.

Moody's has also reviewed the arreas management and work-out process of Eurohypo which, compared to the former Rheinhyp, is now focussing on a call center and the objective of restructuring a delinquent credit within the first 90 days following a missed payment. However, whereas Moody's generally views this change to be positive, the high roll rates even during the last year indicate limited benefit with respect to the default mitigation. As the portfolio comprises second lien mortgages only, Moody's expects relatively low average recovery rates for current and future credit events, despite the loss mitigating definition for realised losses given a capped interest rates of 4 per cent.

Moody's anticipates the first realised losses to cristalise during the first half of 2004. Any such losses will affect the Junior Swap (1.9 per cent initially) first. However, the likelihood of a loss occurring on the Class C, Class D and Class E Notes has increased substantially which has been reflected in today's rating action.

For further information on the current performance, please visit Moody's at www.moodys.com

Frankfurt
Detlef Scholz
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 33 1 53 43 93 78 SUBSCRIBERS: 44 20 7772 5454

Paris
Rupert Schoder
Asst Vice President - Analyst
Structured Finance Group
Moody's France S.A.
Telephone:33 1 53 30 10 73
Facsimile:33 1 42 66 32 20

No Related Data.
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