Approximately EUR 93.7 million of debt security affected
Milan, April 27, 2011 -- Moody's Investors Service has today assigned definitive long term
ratings to Italian RMBS notes issued by Adriatico Finance RMBS S.r.l.:
Aaa (sf) to the 172,300,000 Class A Asset Backed Floating
Rate Notes due 31 December 2044
Moody's has not assigned any rating to the 20,250,000
Class B Asset Backed Floating Rate Notes due 31 December 2044.
The transaction was initially not rated by Moody's and therefore
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 Euro 172.3 million and have now amortised to 93.7 million,
notes ranking junior in the waterfall to Class A will only amortise upon
full repayment of the Class A notes. The amount of notes outstanding
at the most recent payment date (April 20, 2011) amount to Euro
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, the dynamic delinquency data and the vintage
data for defaults and recoveries received from the originator.
The mortgage pool was originated by Cassa di Risparmio della Provincia
di Teramo S.p.A. (Tercas).. Based on
the different data sources Moody's has determined the Aaa MILAN
Credit Enhancement and the expected loss for the portfolio. The
transaction structure and legal considerations have been considered in
Moody's cash flow analysis.
The transaction represents the first securitisation of receivables originated
by Tercas (Baa2/P-2). The assets supporting the notes,
which amount to around EUR 109.2 million, consists of residential
mortgage loans on properties located in Italy. The transaction
benefits from a cash reserve equal to 3.6% of the asset
balance that primarily can cover interest shortfall on the rated notes
and items senior thereto, while it only serves as credit enhancement
when the Class A notes are fully redeemed or at final legal maturity.
Tercas will service the portfolio and if its rating falls below Baa3 a
back up servicer will be appointed. The Back-up servicer
facilitator, Securitisation Services S.p.A.,
facilitates the search for and the appointment of a back-up servicer
in case it would be needed. Furthermore, should the Servicer
not be able to prepare the Servicer Report at any payment date,
continuity of payments for rated notes will be assured by the calculation
agent preparing the payment report on estimates: in this case only
the amounts due to the rated notes and items in priority thereto will
The expected portfolio loss of 4.4% of the current portfolio
balance (equivalent to 4.6% of the portfolio balance at
closing) and the MILAN Aaa required Credit Enhancement of 13.0%
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 key drivers for the portfolio expected loss, which is in line
with the Italian average for the sector, are: (i) around five
years of vintage data for Tercas total mortgage loan book using the same
default definition as in the transaction; (ii) the fact that vintage
data show that the default rates experienced by Tercas are correlated
with the market wide default rates for Italian residential mortgage loans;
(iii) the negative outlook Moody's has on Italian RMBS; (iv)
the amount of defaults that the transaction has experienced since closing;
(v) eight years of dynamic delinquency data for Tercas mortgage loan book
(vi) the fact that vintage data for recoveries only covers closed files
but since the closed files covers around two thirds of all recovery procedures
it could be partially used.
The key drivers for the MILAN Aaa Credit Enhancement number, which
is higher than other Italian RMBS transactions are: (i) 50.4%
of the pool are backed by properties that are located in the seismic zones
categorised as 1 or 2, i.e. with a high or medium
high seismic hazard risk, which is higher than the Italian average
where around 36% of the properties are located in seismic zones
1 and 2; (ii) it has been assumed that all the valuations of the
properties backing the loans have not gone through a valuation process
made by an external appraiser but the valuation has rather been made by
the head of the branch and validated against either the tax value or the
values indicated by Agenzia del Territorio; to account for the lack
of accuracy in the determination of the property value an haircut of 10%
has been applied to all property values. According to the originator
in many instances the valuation of the property has been made by an external
expert but Moody's has not received that information on a loan-by-loan
basis; (iii) Moody's has not received any information whether
the borrower is a single borrower or a joint borrower and has therefore
assumed that all borrowers are single borrowers; (iv) Moody's
has considered that there could be other characteristics of the pool which
have not been properly captured in the MILAN model and therefore the MILAN
number has been qualitatively adjusted in order to generate a loss distribution
with a certain level of volatility or with other words to account for
a higher probability of "fat tail" events with respect to
the expected loss.
The structure is un-hedged with respect to fixed floating,
base rate and timing of base rate mismatches. Moody's has
made a haircut to the interest that the pool is generating in order to
consider: (i) the base rate and base rate timing mismatch that the
floating rate loans (around 77.8% of the pool) are generating;
(ii) the fixed floating mismatch that stems for 22.2% of
the portfolio; and (iii) the additional risk that is generated by
a part of the floating rate loans where the borrower has an interest rate
cap, above which the interest rate due under the mortgage loan cannot
increase irrespective of the level of the index it is pegged to (around
10.5% of floating rate loans). For the base rate
and base rate timing mismatch Moody's has observed the historical
volatility between the different rates on the mortgage loans and the notes
in a given time interval defined on the basis of the cash-flow
dynamics in the transactions. The haircut is then computed by applying
an historical VAR approach with 99% confidence interval for each
payment period. Moody's has in the base case for the fixed-floating
mismatch further assumed that the three-month EURIBOR would increase
by 25 bps per quarter until it reaches a level of 12% and then
stay at that level for the remaining time of the transaction's life.
Moody's has also made various sensitivities with more sever increases
of the three-month EURIBOR both with respect to the speed of the
increases and the final level; and the ratings remain stable also
under those more stressed scenarios.
Liquidity in the transaction comes from (i) the non-amortising
cash reserve of 4 million (equal to 3.6% of the current
pool balance), which normally works more like a liquidity ledger
since it mainly covers interest on the rated notes, swap payments
and senior fees during the life of the transactions and only serves as
credit enhancement when the Class A notes are redeemed or at final legal
maturity, and (ii) the principal to pay interest mechanism.
Moody's assigned a Composite V Score for this transaction of Medium,
which is higher than the V score assigned for the Italian RMBS sector.
The following sub components of the transaction's V Score differ
from the Italian RMBS sector score: (i) "Quality of Historical
Data for the Issuer/Sponsor/Originator" to Medium from Low/Medium
as the recovery data was only provided on loans where the recovery process
has been finalised and the vintage data for defaults with a similar default
definitions as the one in the transactions was covering less than five
years; (ii) "Issuer/Sponsor/Originator's Historical Performance
Variability" which is assessed to be Low/Medium, higher than the
Low sector's average, because of the very high default levels
observed in the current transactions since closing while the fact that
the delinquency level in the transaction is in line with average Italian
RMBs transaction; the high default level could partially be explained
by the tight default definition; (iii) "Transaction Complexity"
at Medium compared to Low/Medium for the sector since the transaction
is un-hedged; (iv) "Analytic Complexity" to Medium
from the sector's Low/Medium as the high concentration of properties
in areas with an increased seismic risk had to be evaluated in order to
adjust the MILAN number; (v) "Market Value Sensitivity"
to Medium from Low/Medium as the transaction is un-hedged;
and (vi) "Experience of, Arrangements Among and Oversight
of Transaction Parties" which is assessed to be Medium, higher
than the Low/Medium sector's average, as this is the first
transaction with Tercas as Originator and Servicer and also the Calculation
Agent and the Representative of the Noteholders are parties with limited
experience in publicly rated transactions. 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. The V Score has been assigned according to the
report "V-Scores and Parameter Sensitivities in the Major EMEA
RMBS Sectors" published in April 2009.
Moody's Parameter Sensitivities: If the expected loss increased
to 9.68% from 4.4%, the model output
indicated that Classe A would still have achieved Aaa even if the MILAN
Aaa CE increased to 15.6% from 13.0% 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. Qualitative
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 definitive 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 at par with respect to the Class A notes on or before the
legal final maturity date of the 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 to investors.
The principal methodology used in this rating was Moody's Approach to
Rating RMBS in Europe Middle East and Africa, published in October
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 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
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
three years preceding the Credit Rating Action. Please see the
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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.
Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Moody's Italia S.r.l
Moody's Investors Service assigns definitive ratings to the Italian RMBS Notes issued by Adriatico Finance RMBS S.r.l.
Corso di Porta Romana 68