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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
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
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 33 1 53 43 93 78
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