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I AGREE
18 Mar 2011
Approximately EUR 1,092.6 million of debt security affected
Milan, March 18, 2011 -- Moody's Investors Service has today assigned definitive credit ratings
to the following class of notes issued by Quadrivio Finance S.r.l.:
....EUR1092.65M A Notes, Assigned
A1 (sf)
Moody's has not assigned any rating to EUR 59,650,000
Class B1 Mortgage-Backed Floating Rate Notes due 2072, EUR
14,050,000 Class B2 Mortgage-Backed Floating Rate Notes
due 2072, EUR 57,750,000 Class B3 Mortgage-Backed
Floating Rate Notes due 2072, EUR 45,700,000 Class B4
Mortgage-Backed Floating Rate Notes due 2072, EUR 31,850,000
Class B5 Mortgage-Backed Floating Rate Notes due 2072, EUR
15,500,000 Class B6 Mortgage-Backed Floating Rate Notes
due 2072.
RATINGS RATIONALE
The transaction was initially not rated by Moody's. Moody's
rating analysis of the notes is based on the transaction structure as
of today: the Class A notes issued at closing amounted to EUR 1,092.6
million and have now amortized to EUR 764.9, notes ranking
junior in the waterfall to Class A will only amortize upon full repayment
of Class A notes. The amount of the notes outstanding at the most
recent payment date (February 25th, 2011) amount to EUR 989.4
million.
The transaction represents the first RMBS transaction originated by banks
belonging to the Credito Valtellinese and Banca di Cividale groups.
The assets supporting the notes, which amount to around EUR 1,011.5
million, consists of mortgage loans extended to individuals 78.3%
and SMEs 21.7% backed by first economic lien on residential
and commercial properties located in Italy. Loans have been originated
by Credito Valtellinese SC, Banca dell'Artigianato e dell'Industria
SpA., Credito Artigiano SpA, Credito Siciliano SpA,
Banca di Cividale SpA and Banca Popolare di Cividale ScpA. .
The portfolio will be serviced by Credito Valtellinese SC (A3/P-2),
each of originators acts as sub-servicer; Banca Popolare di
Cividale ScpA (A3/P-2) has been appointed at closing as back up
servicer, should the rating of the servicer and/or back up servicer
falls below Baa3 a new back up servicer will be appointed.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN Aaa
Credit Enhancement and the portfolio expected loss.
The key drivers for the MILAN Aaa Credit Enhancement for the individual
portion of the portfolio of 10.50%, which is higher
than other Italian RMBS transactions, are (i) the high portion of
loans experiencing late arrears since the transaction closed (1.79%)
, (ii) short data series for Banca di Cividale book showing an high
volatility among vintages and iii) the presence of extendable maturity
loans (15.5%), for which the increase of interest
rates over a certain level can determine a payment shock.
For the aggregate portfolio, the expected portfolio loss of 3.7%
on the portfolio current balance (equivalent to 4.20% of
the portfolio balance at closing) and the MILAN Aaa required Credit Enhancement
of 14.7% served as input parameters for Moody's cash flow
model, which is based on a probabilistic lognormal distribution
as described in the report "The Lognormal Method Applied to ABS Analysis",
published in September 2000. The expected loss which is above the
average for the Italian RMBS sector takes into account (i) the presence
of loans extended to SMEs, for which Moody's expects a higher
default rate than for the individual borrower portfolio, (ii) the
high amount of defaults that have been experienced so far (2.28%
of original balance), (iii) benchmarking with comparable transactions
in the Italian market and (iv) the negative outlook we have on Italian
RMBS.
The expected default rate for the SMEs sub-portfolio was determined
according to the methodology described in the report "Refining the ABS
SME Approach: Moody's Probability of Default assumptions in the
rating analysis of granular Small and Mid-sized Enterprise portfolios
in EMEA" published in March 2009 and "Moody's Approach to Rating
Granular SME Transactions in Europe, Middle East and Africa",
published in June 2007. The most important parameter for the expected
default rate of the SMEs sub-portfolio is the mean default probability
assumed for each of the SME loans derived via the analysis of the characteristics
of the loan-by-loan portfolio information. We expect
the average default probability of the pool to be a Ba3/B1 Moody's equivalent
(translating into 10.91% cumulative default rate over the
weighted average life of 4.2 years of the portfolio).
The loss distribution for the two sub-portfolios were combined
in order to achieve the aggregate loss distribution of the portfolio that
was used in the cash flow analysis to determine the rating of the Class
A notes.
The structure will benefit from a swap, provided by Banca IMI (Aa3/P-1),
which provides a guaranteed margin above Euribor of 153 bps. The
swap complies with Moody's standard swap de-linkage criteria,
however, as the swap counterparty could become subject to insolvency
proceedings, and the swaps will/or could terminate by operation
of law, there is additional linkage for the notes to the rating
of the swap counterparty.
The transaction suffers from limited liquidity support: the main
source of liquidity is the availability of principal to pay interest mechanism,
there is not any additional source of liquidity - which could have
a negative impact on the rating of the notes under certain scenarios,
as servicer disruption. This weakness was reflected in the rating
assigned to class A and resulted in higher linkage with the servicer.
Moody's assigned a Composite V Score for this transaction of Low/Medium
based on Moody's V Score rating methodology as published in the report
"V-Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors"
published in April 2009, which is in line with the V score assigned
for the Italian RMBS sector. Three sub components underlying the
V Score deviate from the average for the Italian RMBS sector: i)
"Quality of Historical Data for the Issuer/Sponsor/Originator"
from Low/Medium to Low because of detailed information provided split
by banks and by type of borrowers, ii) "Analytic Complexity"
which is at Medium driven by the fact that the transaction comprises two
sub pools: this is not standard in the market segment and required
the use of two different methodologies and iii) "Experience of,
Arrangements Among and Oversight of Transaction Parties" to Medium
given this is the first transaction that the originator and servicer has
participated in. V Scores are a relative assessment of the quality
of available credit information and of the degree of dependence on various
assumptions used in determining the rating. High variability in
key assumptions could expose a rating to more likelihood of rating changes.
Moody's Parameter Sensitivities: If the Expected Loss was increased
from 3.7% to 11.2%, the model output
indicated that Classes A, which under the base case would assume
a Aaa, would have achieved Aa1 assuming that MILAN Aaa CE remained
at 14.70% and all other factors remained the same.
Moody's Parameter Sensitivity provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's-rated
structured finance security may vary if certain input parameters used
in the initial rating process differed. The analysis assumes that
the deal has not aged and is not intended to measure how the rating of
the security might migrate over time, but rather how the initial
rating of the security might have differed if key rating input parameters
were varied. Other factors are also taken into consideration in
the ratings process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
Sensitivity analysis.
The ratings address the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and ultimate payment of principal
with respect of the notes by the legal final maturity. Moody's
ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
The principal methodologies used in this rating were Moody's Approach
to Rating Italian RMBS published in December 2004 and Cash Flow Analysis
in EMEA RMBS: Testing Structural Features with the MARCO Model (Moody's
Analyser of Residential Cash Flows) published in January 2006.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating 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 Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Milan
Francesca Pilu
Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
Milan
Michelangelo Margaria
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's Investors Service assigns definitive credit ratings to notes issued by Quadrivio Finance S.r.l.:
No Related Data.
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