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Rating Action:

Moody's Downgrades The Ratings of Nine Metrofinanciera Construction Loan Securitizations to C from Caa1

 The document has been translated in other languages

12 Dec 2008
Moody's Downgrades The Ratings of Nine Metrofinanciera Construction Loan Securitizations to C from Caa1

Mexico City, December 12, 2008 -- Moody's de Mexico (Moody's) has downgraded the global scale ratings of nine Metrofinanciera, S.A. de C.V. (Metrofinanciera) construction loan securitizations to C from Caa1. Additionally, for seven domestic transactions that were assigned national scale ratings, Moody's has also downgraded these ratings to C.mx from Caa1.mx (Mexican National Scale).

The affected securitizations include series METROCB 02, METROCB 03-2, METROCB 03-3, METROCB 04, METROCB 05, Metrofinanciera Trust Asset-Backed Notes Series 2005-1, METROCB 07, METROCB 07-3, and Series 2007-1 Class A Floating Rate Notes due July 2014. The previous rating action on the affected securities occurred on October 14, 2008. At that time, Moody's downgraded the global scale ratings of the nine securitizations to Caa1 from Baa1. Additionally, for seven of the nine transactions that were placed in the domestic market and therefore assigned national scale ratings, Moody's also downgraded these to Caa1.mx from Aaa.mx (Mexican National Scale). All ratings remained on review for further possible downgrade.

Today's rating action is primarily based on the following factors: i) recent company statements about the diversion of collections on the securitized construction loans away from the securitization trust accounts, ii) serious concerns about the data integrity of the servicer reports prepared by the company and used by Moody's to monitor performance, iii) the continuous low level of principal collections on the securitized portfolios, iv) the disruption in disbursements of funds to developers as reported by the company, and v) Moody's recent downgrade of Metrofinanciera's issuer rating to Caa2 from B3 (Global Scale, Local Currency) and to Caa2.mx from Ba3.mx (Mexican National Scale), which occurred on December 2, 2008.

During the announcement of its 2008 third quarter financial statements results on November 26, 2008, Metrofinanciera revealed that significant amounts of collections on the underlying construction loans serving as collateral for some of the securitized transactions had been diverted away from the securitization trust accounts. The company stated that it had failed to accurately report the proceeds of sales of housing units in the underlying housing developments and had failed to transfer those collections to the trust accounts.

In April and July 2008, Moody's reported that it had identified a group of construction loans in each of the securitized pools with reported balances that had had little or no change during the last 12 months. The company's reported failure to accurately report the sale of housing units likely contributed to the observed near-constant loan balances given that some of the sales proceeds collected by Metrofinanciera were not remitted to the trust and were therefore not used to amortize the corresponding construction loans.

Furthermore, the company disclosed that very few disbursements are being made to developers awaiting funds available under their construction lines of credit. This is further evidenced by the low level of disbursements reported by the trustee in recent months across the various trusts. Unless remedied, the lack of disbursements will likely continue to cause significant disruptions in the construction and sales of the underlying housing units and may further contribute to the already high level of reported delinquencies. Moody's notes that the company reported that it is reviewing the construction projects to identify which ones are viable and therefore worth disbursing additional monies to finance the completion of unfinished construction.

In addition, credit trends continue to be very weak across the securitized loan pools. As per the data reported in the October and November 2008 trustee reports, the reported loan-level and pool-level amortization continue to exhibit a very slow pace.

Finally, today's rating action also reflects Moody's recent downgrade of Metrofinanciera's issuer rating to Caa2 from B3 (Global Scale, Local Currency) and to Caa2.mx from Ba3.mx (Mexican National Scale). As a result of the downgrades, Moody's has heightened concerns about Metrofinanciera's stability as a servicer, which could negatively affect its ability to perform its duties as servicer of the securitized loans.

Moody's believes that the company's disclosed diversion of funds belonging to the securitized trusts and the weak level of reported collections remitted to the trusts in recent times have considerably increased the expected extent of losses that certificate holders could experience.

The ratings on the certificates were assigned by evaluating factors determined to be applicable to the credit profile of the certificates, such as i) the nature, sufficiency, and quality of historical performance information regarding the asset class as well as for the transaction sponsor, ii) an analysis of the type of collateral being securitized, iii) an analysis of the policies, procedures and alignment of interests of the key parties to the transaction, most notably the originator and servicer, iv) an analysis of the transaction's allocation of collateral cashflow and capital structure, v) an analysis of the transaction's governance and legal structure, and (vi) a comparison of these attributes against those of other similar transactions.

In addition to the factors mentioned above, Moody's approach to rating securitizations of construction loans in Mexico considers i) the loan origination and underwriting process, ii) the degree of asset diversification, iii) the loan eligibility criteria, iv) supply and demand risk in the Mexican housing sector, v) take-out risk, and vi) structural features and protections, including credit enhancement and early amortization events. Other methodologies and factors that may have been considered in the process of rating these transactions can also be found at www.moodys.com on the Rating Methodology & Performance page.

The complete rating action is as follows:

Issuer: Banco Invex, S.A., Institución de Banca Múltiple, Invex Grupo Financiero (only in its capacity as trustee of the securitization trusts).

Originator and Servicer: Metrofinanciera S.A. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad No Regulada.

- METROCB 02 (Trust 325), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- METROCB 03-2 (Trust 374), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- METROCB 03-3 (Trust 374), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- METROCB 04 (Trust 374), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- METROCB 05 (Trust 468), downgraded to C (Global Scale, Foreign Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Foreign Currency) and Caa1.mx (Mexican National Scale).

- METROCB 07 (Trust 590), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- METROCB 07-3 (Trust 689), downgraded to C (Global Scale, Local Currency) and C.mx (Mexican National Scale) from Caa1 (Global Scale, Local Currency) and Caa1.mx (Mexican National Scale).

- Series 2007-1 Class A Floating Rate Notes due July 2014 (Trust 650), downgraded to C (Global Scale, Local Currency) from Caa1 (Global Scale, Local Currency).

Issuer: Banco JPMorgan, S.A. (only in its capacity as trustee of the securitization trust).

- Metrofinanciera Trust Asset-Backed Notes Series 2005-1 (Trust 123), downgraded to C (Global Scale, Foreign Currency) from Caa1 (Global Scale, Foreign Currency).

New York
Maria Muller
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Karen Ramallo
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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