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Rating Action:

Moody's Downgrades Ratings in 3 Banca Italease-Originated Lease ABS Transactions

12 Jul 2013

London, 12 July 2013 -- Moody's Investors Service has today downgraded by one to four notches the ratings of the senior and mezzanine tranches issued by Italfinance Securitisation Vehicle (ITA 8), Italfinance Securitisation Vehicle 2 (ITA 9) and Leasimpresa Finance (LF 2). The rating agency has also downgraded the junior rated tranches in ITA 9 and LF 2 by one notch while confirming those in ITA 8. At the same time, Moody's affirmed the ratings of the notes issued by Italease Finance Series 2005-1 (ITA 7). Insufficient credit enhancement, which protects against sovereign and counterparty risk, primarily drove today's rating downgrade.

Today's rating action concludes the review for downgrade initiated by Moody's on 1) 2 August 2012, following Italy's downgrade, and 2) 11 December 2012, following the placement of Banca Italease on review for downgrade. These transactions are asset-backed securities transactions backed by financial leases originated by Banca Italease S.p.a (B2/NP) for equipment, auto and real-estate leases.

For a detailed list of the affected ratings, see towards the end of the ratings rationale section.

RATINGS RATIONALE

Today's rating downgrade primarily reflects the insufficient credit enhancement to address sovereign and increased counterparty risk following the downgrade of Banca Italease. Moody's downgraded Banca Italease from Ba1/NP to B2/NP on 8 July 2013 (see http://www.moodys.com/research/Moodys-downgrades-Banco-Popolare-SCs-deposit-rating-to-Ba3-from--PR_277227).

The introduction of new adjustments to Moody's modelling assumptions to account for the effect of deterioration in sovereign creditworthiness and the exposure to lowly rated counterparties has had a negative effect on the ratings of some notes in ITA 8, ITA 9 and LF 2.

ITA 8, ITA 9 and LF 2 have a strong linkage with the originator, Banca Italease. The observed performance of these transactions, which is so far in line with our assumptions, is conditioned by the ability of the originator to repurchase delinquent loans and by its obligation to repurchase defaulted loans (for a minimum price of 75% of their outstanding amount). Following the four notch downgrade of Banca Italease on 8 July 2013, the likelihood of the repurchase performance diminished, resulting in a rating impact on all tranches but the junior tranche of ITA 8.

When modelling cash flows, Moody's maintained the recovery rate assumptions of ITA 8, ITA 9 and LF 2 at 75% based on Banca Italease repurchase obligation. However, Moody's assumed the recovery rate to go down to 15% upon Banca Italease's default. Legal uncertainty on the rights of the special purpose vehicles (SPVs) to recover amounts on the lease contracts upon originator's default drive this assumption. This feature creates additional linkage between the rating of the notes and the rating of Banca Italease.

The rating of the Class D note of ITA 8 is confirmed at B3 (sf), as the credit enhancement available under the tranche (12%) is sufficient to balance the increase counterparty and sovereign risks at this rating level.

In ITA 7, the credit enhancement available in the form of subordination and reserve fund under tranche A2 (55%), tranche B (49%) and tranche C (46%) is sufficient to address the sovereign and counterparty risks. In addition, in ITA 7, the rating of the notes is less linked to the rating of the originator, as there is no such repurchase obligation of defaulted loans as described above.

Borrower concentration was also taken into account in Moody's analysis given that the 10 biggest debtors represent between 10% and approximately 20% of the pool balance in the transactions.

- Additional Factors Better Reflect Increased Sovereign Risk

Moody's has supplemented its analysis to determine the loss distribution of securitised portfolios with two additional factors, the maximum achievable rating in a given country (the local currency country risk ceiling) and the applicable portfolio credit enhancement for this rating. With the introduction of these additional factors, Moody's intends to better reflect increased sovereign risk in its quantitative analysis, in particular for mezzanine and junior tranches. See "Structured Finance Transactions: Assessing the Impact of Sovereign Risk" for a more detailed explanation of the additional parameters. This report is available on www.moodys.com and can be accessed via the following link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319988.

The Italian country ceiling is A2, which is the maximum rating that Moody's will assign to a domestic Italian issuer including structured finance transactions backed by Italian receivables. The portfolio credit enhancement represents the required credit enhancement under the senior tranche for it to achieve the country ceiling. By lowering the maximum achievable rating, the revised methodology alters the loss distribution curve and implies an increased probability of high loss scenarios.

Under the updated methodology incorporating sovereign risk on ABS transactions, loss distribution volatility increases to capture increased sovereign-related risks. Given the expected loss of a portfolio and the shape of the loss distribution, the combination of the highest achievable rating in a country for structured finance and the applicable credit enhancement for this rating uniquely determines the volatility of the portfolio distribution, which the coefficient of variation (CoV) typically measures for ABS transactions. A higher applicable credit enhancement for a given rating ceiling or a lower rating ceiling with the same applicable credit enhancement both translate into a higher CoV.

- Moody's Revises Key Collateral Assumptions

Moody's maintained its default and recovery rate assumptions for these transactions, which it updated on 18 December 2012 (see "Moody's updates key collateral assumptions in Italian ABS transactions backed by portfolio of leases and loans to SME", http://www.moodys.com/research/Moodys-updates-key-collateral-assumptions-in-Italian-ABS-transactions-backed--PR_262510 on www.moodys.com).

According to the updated methodology, Moody's increased the CoV, which is a measure of volatility.

In ITA 7, the current default assumption is 7.0% of the current portfolio and the assumption for the fixed recovery rate is 50.0%. Moody's has increased the CoV to 93.2% from 49.0%, which, combined with the key collateral assumptions, resulted in a portfolio credit enhancement of 20.0%.

In ITA 8, the current default assumption is 13.0% of the current portfolio and the assumption for the fixed recovery rate is 75.0% based on the originator repurchase obligation. Moody's has increased the CoV to 63.7% from 45.0%, which, combined with the key collateral assumptions, resulted in a portfolio credit enhancement of 21.0%.

In ITA 9, the current default assumption is 14.0% of the current portfolio and the assumption for the fixed recovery rate is 75.0% based on the originator repurchase obligation. Moody's has increased the CoV to 74.0% from 59.7%, which, combined with the key collateral assumptions, resulted in a portfolio credit enhancement of 22.5%.

In LF 2, the current default assumption is 10.0% of the current portfolio and the assumption for the fixed recovery rate is 75.0% based on the originator repurchase obligation. Moody's has increased the CoV to 83.3% from 79.9%, which, combined with the key collateral assumptions, resulted in a portfolio credit enhancement of 20.0%.

- Moody's Has Considered Exposure to Counterparty Risk

During its review, Moody's also considered potential risk arising from counterparties to the transaction in the role of issuer account bank (BNP Paribas (A2/P-1)) and swap provider (BNP Paribas). None of the reviewed transactions is currently exposed to further risk arising from the counterparties acting in these roles.

The risk of servicing disruption increased following the downgrade of Banca Italease from Ba1/NP to B2/NP. However, the appointment of Selmabipiemme as back-up servicer and the significant liquidity available in the form of cash reserve or liquidity facility in each transaction mitigate this risk.

- Other Developments May Negatively Affect the Notes

In consideration of Moody's new adjustments, any further sovereign downgrade would negatively affect structured finance ratings through the application of the country ceiling or maximum achievable rating, as well as potentially increased portfolio credit enhancement requirements for a given rating.

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 further negatively affect the ratings of the notes.

Moody's describes additional factors that may affect the ratings in its Request for Comment, "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment", 02 July 2012.

The methodologies used in these ratings were "Moody's Approach to Rating Multi-Pool Financial Lease-Backed Transactions in Italy", published in June 2006, "Moody's Approach to Rating EMEA SME Balance Sheet Securitisations", published in May 2013, and "The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines", published in March 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The revised approach to incorporating country risk changes into structured finance ratings forms part of the relevant asset class methodologies, which Moody's updated and republished or supplemented on 11 March 2013 ("Incorporating Sovereign Risk into Multi-Pool Financial Lease-Backed Transactions in Italy"), along with the publication of its Special Comment "Structured Finance Transactions: Assessing the Impact of Sovereign Risk".

In reviewing this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the inverse normal distribution assumed for the portfolio default rate. In each default scenario, Moody's calculates the corresponding loss for each class of notes given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss for each tranche is the sum product of the probability of occurrence of each default scenario and the loss derived from the cash flow model in each default scenario for each tranche.

As such, Moody's analysis encompasses the assessment of stressed scenarios.

When remodelling the transactions affected by today's rating actions, some inputs have been adjusted to reflect the new approach described above.

LIST OF AFFECTED RATINGS

Issuer: Italease Finance S.p.A. Series 2005-1 (ITA 7)

....EUR447.9M A2 Notes, Affirmed A2 (sf); previously on Aug 2, 2012 Downgraded to A2 (sf)

....EUR45.4M B Notes, Affirmed A2 (sf); previously on Aug 2, 2012 Downgraded to A2 (sf)

....EUR18.7M C Notes, Affirmed A3 (sf); previously on Sep 7, 2010 Confirmed at A3 (sf)

Issuer: Italfinance Securitisation Vehicle S.r.l. (ITA 8)

....EUR959M A Notes, Downgraded to Baa2 (sf); previously on Aug 2, 2012 Downgraded to A2 (sf)

....EUR83M B Notes, Downgraded to Ba3 (sf); previously on Dec 11, 2012 Downgraded to Baa2 (sf) and Remained On Review for Possible Downgrade

....EUR56M C Notes, Downgraded to B2 (sf); previously on Aug 2, 2012 Ba3 (sf) Placed Under Review for Possible Downgrade

....EUR18.5M D Notes, Confirmed at B3 (sf); previously on Aug 2, 2012 B3 (sf) Placed Under Review for Possible Downgrade

Issuer: Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9)

....EUR1442.4M A Notes, Downgraded to Baa3 (sf); previously on Dec 11, 2012 Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade

....EUR125M B Notes, Downgraded to Ba3 (sf); previously on Dec 11, 2012 Downgraded to Baa3 (sf) and Remained On Review for Possible Downgrade

....EUR84.3M C Notes, Downgraded to B2 (sf); previously on Dec 11, 2012 Downgraded to Ba2 (sf) and Remained On Review for Possible Downgrade

....EUR27.9M D Notes, Downgraded to B3 (sf); previously on Dec 11, 2012 Downgraded to B2 (sf) and Remained On Review for Possible Downgrade

Issuer: Leasimpresa Finance S.r.l. (LF 2)

....EUR931.5M A Notes, Downgraded to Baa2 (sf); previously on Dec 11, 2012 Downgraded to Baa1 (sf) and Remained On Review for Possible Downgrade

....EUR57.2M B Notes, Downgraded to Ba1 (sf); previously on Dec 11, 2012 Downgraded to Baa3 (sf) and Remained On Review for Possible Downgrade

....EUR10.3M C Notes, Downgraded to Ba2 (sf); previously on Dec 11, 2012 Downgraded to Ba1 (sf) and Remained On Review for Possible Downgrade

REGULATORY DISCLOSURES

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.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alix?Faure
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carole Gintz
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
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Moody's Downgrades Ratings in 3 Banca Italease-Originated Lease ABS Transactions
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