Approx. EUR76.4 million (current balance) of Notes affected
Paris, February 25, 2011 -- Moody's Investors Service has assigned the following definitive ratings
to notes issued by LTR Finance No.7 Limited (the "Issuer"):
....EUR101.23M A Note, Assigned
Moody's has not assigned ratings to the subordinated Euro 22.98
million Class B Notes and Euro 2.49 million Class C Notes.
The transaction is a cash securitisation of Portuguese and Spanish auto
loan and lease contracts and equipment lease contracts originated by Sofinloc
Instituição Financeira de Créditos, S.A.
(Sofinloc) in Portugal and Sofinloc Instituição Financeira
de Créditos, S.A. Spanish Branch (Sofinloc
Spanish Branch) in Spain, which have retained the roles of Portuguese
and Spanish servicers (together, the servicers) in these transactions.
Sofinloc is a subsidiary of Banco Finantia S.A. (Banco Finantia).
The transaction has closed in January 2009 and has started to amortise
in February 2010. The current balance of the Class A notes is EUR
76.4 million. This is the seventh public securitisation
transaction sponsored by Banco Finantia. The outstanding Moody's
rated transactions are LTR 5, LTR 6 and LTR Warehouse which closed
in July 2004, September 2006 and April 2007, respectively
and their revolving periods terminated in October 2007, November
2009 and March 2009.
The securitised portfolio consists of vehicles loans and leases contracts
extended to individuals and companies resident in Portugal and Spain.
The contracts can be split into six product types (percentages referenced
to 30 September 2010): Portuguese auto credit (35.4%of
outstanding portfolio amount), Spanish auto credit (44.9%),
Portuguese auto leasing (6.1%), Spanish Auto Leasing
(3.7%), Portuguese auto long term rental contracts
("LTRs") (5.2%) and Portuguese Equipment (4.8%).
The auto credit product is generally extended to fund the purchase of
used vehicles. The vehicle is owned by the obligor although the
obligor's ability to dispose of the vehicle during the life of the
loan is subject to certain sale restrictions. Under LTR and leasing
contracts, ownership of the vehicle is retained by the originator.
The obligor may terminate the LTR or leasing contract and surrender the
vehicle to the originator prior to the end of the scheduled term (subject
to the originator consent under the leasing contracts). In this
circumstance, the obligor is required to pay the amount by which
the aggregate of the outstanding principal balance of the contract and
an additional amount in accordance with the originator's tariffs
exceeds the market value of the vehicle. As of 30 September 2010,
the portfolio consists of approximately 9,365 contracts.
The contracts were mainly originated between 2007 and 2009, with
a weighted average seasoning of 31 months and a weighted average remaining
term of 71 months.
According to Moody's, the transaction benefits from credit strengths
such as a static granular portfolio, 8 years of historical data
provided for each underlying products, a reserve fund available
to cover up to 9 months of liquidity shortfalls throughout the life of
the transaction, credit enhancement in the form of subordination
and reserve fund (as per the Class A notes, 25.7%
as of 31 December 2010) and excess spread.
The Class A notes rating was constrained by the transaction operational
weaknesses given that the originators and servicers are not rated and
given the complexity embedded in such cross border transaction.
The transaction is exposed to the ability of the servicers to perform
their various obligations related to servicing and cash management (a
role associated with payment calculations and instructions) in a timely
fashion. Moody's notes that there are no appointed back-up
servicers. Transaction documents include replacement events that
are triggered when the capital adequacy ratio of Banco Finantia ceases
to be above 8% or if their regulators intervene or investigate
in the affairs of the servicers. However, Moody's believes
these triggers imperfectly protect the transactions from possible disruptions
in the event of a sudden deterioration in the credit quality of Banco
Finantia, Sofinloc or Sofinloc Spanish Branch and if a successor
servicer could not be rapidly found.
Moody's analysis considered the statutory role of the Spanish and Portuguese
fund managers to act as back-up servicer facilitators, but
noted that the Portuguese' is linked to Banco Finantia. Moody's
also notes that the collateral type and servicing platforms are relatively
standard, servicing fees consistent with market practices.
Moody's analysis also considered the risk of commingling of cash from
the collection accounts held under the name of an insolvent servicer.
While this risk cannot be ruled out, Moody's has considered the
daily frequency of collection sweeps to the transaction accounts and the
ability of the fund managers to redirect payments as mitigating factors.
Further, Moody's weighted such commingling risk in its transaction
in its quantitative analysis.
Most of the cash management activities are performed by the transaction
manager, a highly rated third party. However, if the
servicers were unable to provide information related to collections in
a timely fashion, it is unlikely that the transaction manager would
be in a position to order timely payments from collections.
However, Moody's considers the ability of the transaction manager
to use cash from the significant, fully-funded cash reserve
accounts (which include liquidity ledgers corresponding to nine months
of interest) significantly mitigates the risk of non-payment of
interest on the notes under a servicer disruption scenario. While
payment delays resulting from consensus seeking could lead to technical
defaults, party incentives are aligned to minimise the likelihood
of payment defaults.
Moody's assumed a default rate of 10% for the entire pool and a
coefficient of variation of 45% which are used as the main input
for the lognormal default distribution. Whilst the historical default
rate for 2007 and 2008 vintages showed default rates higher than previous
default level, Moody's has given benefit to the lower default rate
observed in more recent vintages and stabilising delinquency data.
Moody's noted the decreasing trend in recovery rates and assumed
as a result a 15% recovery rate.
The V-score analysis for the transaction is Medium. Moody's
has compared the transaction v-score with the Spanish consumer
loan sector scores. The main contribution to an overall Medium
V-score assessment for the transaction is from the assessment on
the transaction complexity and absence of back-up servicer arrangement.
In addition, Moody's has observed significant variability in the
performance of different origination vintages. For more information,
the V-Score has been assigned accordingly to the report "V Scores
and Parameter Sensitivities in the Non-U.S. Vehicles
ABS Sector", published in January 2009.
The principal methodologies used in this rating were Moody's Approach
to Rating European Auto ABS: More Rubber Set to Hit European Roads,
published in November 2002 and The Lognormal Method Applied to ABS Analysis,
published in July 2000.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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.
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
on the Class A Notes. 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
Moody's used its excel based cash-flow model Moody's ABSROM™
as part of its quantitative analysis of the transaction. Moody's
ABSROM™ model enables users to model various features of a standard
European ABS transaction -- including the specifics of the
default distribution of the assets, their portfolio amortisation
profile, yield, as well as the specific priority of payments,
swaps and reserve funds on the liability side of the ABS structure.
Moody's ABSROM™ User Guide, available on Moody's website,
covers the functionality of the model and provides a comprehensive index
of the user inputs and outputs.
In rating auto ABS, loss rate and co-efficient of variation
are two key inputs that determine the lognormal distribution. Parameter
sensitivities for this transaction have been tested in the following manner:
Moody's tested nine scenarios derived from the combination of mean default:
10.00% (base case), 11.00% (base case
+1.00%), 12.00% (base case +2.0%)
and recoveries: 15% (base case), 10% (base case
-5%), 5% (base case -10%).
The model sensitivity output indicated that Class A would have achieved
a A1 even if the cumulative mean default probability had been as high
as 10% and the recovery rate as low as 10% (all other factors
being constant). Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of 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. It is not intended to measure how the rating of the security
might migrate over time, but rather, how the initial model
output of the security might have differed if the two parameters within
a given sector that have the greatest rating impact were varied.
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,
and public 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.
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Service(s) to the rated entity or its related third parties within the
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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.
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
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Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Moody's France SAS
Moody's Investors Service assigns definitive ratings to notes issued by LTR Finance No.7 Limited
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