EUR 103.6 Million of securities rated
Milan, December 02, 2011 -- Moody's Investors Service has today assigned the following definitive
ratings to the notes issued by Dolomiti Mortgage S.r.l.:
-EUR103,600,000 Class A Mortgage Backed Floating Rate
Notes due July 2051, Assigned Aaa (sf)
Dolomiti Mortgage S.r.l. is the first securitisation
of mortgage loans granted by Hypo Alpe - Adria Bank S.p.A
("Hypo"; not rated) to Italian individuals (38%)
and small and medium sized enterprises (SMEs, 62%).
Hypo, 100% owned by Hypo Alpe - Adria Bank International
AG (not rated), is acting as servicer of the loans. The Class
A notes have a credit enhancement of 56%, which is provided
by subordination. The non amortising EUR 8.3 Million cash
reserve (representing 3.5% of the total portfolio and which
is funded at closing with the notes proceeds) has not been included in
the above credit enhancement computation, as the reserve will serve
as liquidity support only during the life of the transaction. However,
at deal maturity the amounts in the reserve can be used to repay the Class
A notes.
RATINGS RATIONALE
As of July 2011, the pool was composed of 1,533 mortgage loans
grated to 1,429 obligors located in Italy. The loans to SMEs
represented 62% of the total portfolio. The weighted average
seasoning of the portfolio is 4 years and its weighted average remaining
term is 13 years. The interest rate is floating for 99.5%
of the pool. The weighted average margin over the index being 1.73%.
The pit-stop loans (i.e. loans where the borrower
can decide to switch from fixed to floating rate and viceversa) represent
roughly 13% of the total portfolio (mainly loans to individuals).
The first lien mortgages represent 88.5% of the portfolio
and the weighted average loan to value is 47.2%.
The collateral consists of both resindential and commercial real estate
properties located in Italy. Geographically, the pool is
concentrated mostly in Lombardia (44%) and Veneto (38%),
while -- as far as the industry concentration is concerned -
the Construction & Building Sector represent 61% of the SMEs
sub-portfolio. The provisional pool, as of its poolcut
date, as well as the portfolio transferred on the 8 November 2011
did not include any loans in arrears by more than 30 days.
This deal benefits from some credit strengths (i) the simplicity of the
structure, which does not include a revolving period, and
(ii) the high collateralization of the portfolio. Moody's,
however, notes that the transaction features a number of credit
weaknesses, (i) the poor granularity of the portfolio, i.e.
the top 20 borrowers (mainly SMEs) represent 23% of the total portfolio;
(ii) the exposure to the highly cyclical Building and Real Estate sector;
(iii) the exposure to interest rate risk for 13% of the portfolio
unhedged; (iv) the exposure to set-off risk (however fully
mitigated by a EUR 11.8 Million set-off cash reserve as
of closing which will amortize following the outstanding of the loan and
the bonds hold by the borrowers); and (v) exposure to commingling
loss, although mitigated by a commingling reserve of EUR 3.8
Million, covering roughly one month of collections. These
characteristics, amongst others, were considered in Moody's
analysis and ratings.
The rating is primary based on (i) an evaluation of the underlying portfolio
of loans; (ii) the historical performance information; (iii)
the credit enhancement under the Class A and the reserve fund providing
liquidity to Class A ; (iv) the back-up servicer appointed
at closing (Unipol Banca S.p.A., rated Baa2/P-2);
and (vi) the legal and structural integrity of the transaction.
In its quantitative assessment, Moody's assumed a mean default rate
of 21.75% for the entire portfolio (29.5%
for the SME sub-portfolio only equivalent to a B3 Moody's
proxy rating), with a coefficient of variation of 30.0%
(28% for the SME sub-portfolio only, implying a pairwise
correlation of 16%) and a recovery rate of 40.0%
7 years after default. In other words, Moody's assumed
an expected portfolio loss of 15% of the initial asset balance
and a MILAN Aaa required credit enhancement of 44%.
Moody's also tested other set of assumptions under its Parameter
Sensitivities analysis. The results show that the model output
for Class A notes would be 1 notch lower if the expected loss assumption
was to increase to 19%, assuming that the MILAN Aaa credit
enhancement remained at 44% and all other parameters being kept
unchanged. Similarly, the model output would be 1 notch lower
if the MILAN Aaa credit enhancement was to increase to 46%,
all other parameters being kept unchanged. For more details,
please refer to the full Parameter Sensitivity analysis included in the
New Issue Report of this transaction.
The key drivers for the portfolio expected loss, which is clearly
higher than other Italian mixed portfolios, are (i) 62% of
loans extended to Italian SMEs, for which Moody's expects
a higher default rate than for individuals borrowers; (ii) the poor
granularity of the SME sub-portfolio, with the top 20 debtors
representing 37.5% of this sub-portfolio (Moody's
has assumed for these borrowers a weighted average mean default rate equivalent
to a B3/Caa1 Moody's proxy rating); (iii) 61% of the
SMEs portfolio exposed to the highly cyclical Construction and Building
sector, considered particularly risky compared to other sectors;
(iv) the negative outlook that Moody's has currently on Italian
RMBS and SMEs; and (v) the poor recovery vintage data.
The key drivers for the MILAN Aaa Credit enhancement number, which
is clearly higher than other Italian mixed portfolio are (i) the largest
portion of SMEs, for which Moody's expects a much higher MILAN
Aaa credit enhancement than the sub-portfolio with mortgage loans
to individuals; and (ii) the poor granularity of the portfolio in
terms of borrowers and industry.
The main source of uncertainty in the analysis relate to the variability
of the assets historical performance. The V-score for this
transaction is Medium, which is in line with the score assigned
to the Italian SME sector. Moody's notes that the Analytic
complexity is Medium/High, because (i) the portfolio compromises
both individuals and SMEs and for this reason a combined approach has
been followed by Moody's and (ii) 13% of the portfolio is
unhedged. Back-up servicer arrangement is Low/Medium,
as a back-up servicer has been identified at closing.
V-Scores are a relative assessment of the quality of available
credit information and of the degree of dependence on various assumptions
used in determing the rating. For more information, the V-Score
has been assigned accordingly to the report "V Score and Parameter
Sensitivities in the EMEA Small-to-Medium Enterprise ABS
Sector" published in June 2009.
The ratings address the expected loss posed to investors by the legal
final maturity of the notes (2051). In Moody's opinion,
the structure allows for the timely payment of interest and ultimate payment
of principal of the Class A notes at par on or before the final legal
maturity date. Moody's ratings address only the credit risks
associated with the transactions. Other non-credit risks
ave not been addressed, but may have a significant effect on yields
to investors.
The methodologies used in this rating were Moody's Approach to Rating
the CDOs of SMEs in Europe, published in February 2007, Moody's
Approach to Rating RMBS in Europe, Middle East, and Africa,
published in October 2009, Moody's Approach to Rating Granular
SME Transactions in Europe, Middle East and Africa, published
in June 2007 and 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. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
In rating this transaction, Moody's used CDOROM to determine the
default distribution for the SME sub-portfolio. The Moody's
CDOROM™ is a Monte Carlo simulation which takes the the default
probabilities as input. Each borrower is modelled individually
with a standard multi-factor model incorporating intra-
and inter-industry correlation. The correlation structure
is based on a Gaussian copula. In each Monte Carlo scenario,
defaults are simulated.
The loss distribution for the SME sub-porfolio was convered into
a lognormal distribution and then combined with the loss distribution
resulting from the MILAN model for the individual sub-portoflio
in order to achieve the aggregated loss distribution of the total portfolio.
Moody's used also 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
lognormal distribution assumed for the portfolio default rate.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the assets and
the outgoing payments to third parties and noteholders. Therefore,
the expected loss or EL for each tranche is the sum product of (i) the
probability of occurrence of each default scenario; and (ii) 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.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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 in this transaction.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF269075.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
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page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
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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.
Monica Curti
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Thorsten Klotz
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's Investors Service has assigned definitive ratings to notes issued by Dolomiti Mortgage S.r.l.
