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21 Mar 2011
Approximately EUR13.4 million of rated debt securities affected.
London, 21 March 2011 -- Moody's Investors Service announced today that it has downgraded
the ratings of the class C notes issued by Sestante Finance S.r.l.
Complete rating action is as follows:
Issuer : Sestante Finance S.r.l.
....EUR13.36M C Notes, Downgraded
to Baa2 (sf); previously on Mar 10, 2010 Baa1 (sf) Placed Under
Review for Possible Downgrade
The rating of the class C junior note in Sestante Finance S.r.l.
was placed on review for possible downgrade in March 2010 for worse than
expected performance of the collateral backing the note.
Today's rating action concludes the review of Sestante Finance S.r.l.
and takes into consideration the worse than expected performance of the
collateral and the negative sector outlook for Italian RMBS.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determines the MILAN
Aaa Credit Enhancement (MILAN Aaa CE) and the lifetime losses (expected
loss). The MILAN Aaa CE and expected loss are two key parameters
used by Moody's to calibrate the loss distribution curve for cash
flow analysis. Moody's accounts for the transaction structure
and legal considerations in the analysis in order to rate European RMBS
Portfolio Expected Loss:
Moody's has reassessed its lifetime loss expectation for Sestante
Finance S.r.l. taking into account the collateral
performance to date as well as the current macroeconomic environment in
Italy. Late stage 90+ delinquencies were equal to 4.75%
of the current pool balance in December 2010. The cumulative defaults
were 4.98% of the original pool balance in this same period
compared with 3.71% in December 2009. Despite a recent
stabilisation in arrears trends Moody's believes that the collateral
performance will remain sensitive to Italian economic conditions.
In particular Moody'sEconomy.com estimates that Italian GDP growth
slowed to 0.3% in Q3 2010 from 0.5% quarter-on-quarter
growth in Q2 2010 and it is expected that Italy's annual GDP growth will
slow to 0.5% in 2011 from 1% in 2010. In addition
the seasonally adjusted unemployment rate in Italy fell to 8.3%
in the third quarter 2010 from 8.4% in the second quarter.
The Italian labour market is expected to continue to face difficulties
which may impact the ability of borrower's to repay loans. Moody's
has therefore increased its loss expectations for the portfolio to 3.5%
of original balance, up from 2.65% of original balance
assumed at closing.
MILAN Aaa CE:
Moody's has assessed the loan-by-loan information
for Sestante Finance S.r.l. to determine the MILAN
Aaa CE. The MILAN Aaa CE has been increased to 12% from
8% assigned when the transaction closed. The increase in
the MILAN Aaa CE reflects the current performance and composition of the
securitised loan pool. The pool is composed of broker originated
loans, 50% of loans on an increasing instalment arrangement,
28% of loans to self-employed borrowers, and 5%
of loans for a vacation or second-home. Moody's notes that
the current credit enhancement available under class A notes is 28.3%.
Reduced Liquidity for Class C Notes
Moody's notes that the class C notes have reduced liquidity support in
the structure due to class A2 notes positioning in the waterfall.
The class A2 notes are not backed by mortgages and are repaid according
to a scheduled amortisation profile with excess spread trapped in the
interest waterfall. According to the priority of payments,
class A2 principal ranks senior to interest on class B and C notes.
In high loss scenarios the excess spread may not be sufficient to maintain
timely payments on class C notes. In addition the principal to
pay interest mechanism is not available for class C notes. The
reduced liquidity available for class C is the main driver for today's
Hedging: The excess spread in the transaction is guaranteed by the
swap counterparty at 1.55% of the outstanding class A1,
B and C. The swap counterparty is Dresdner Bank AG (A2).
Servicing : Moody's notes that a servicing transfer to Italfondiario
is currently in process. Italfondiario is a 3rd party specialist
in servicing Italian non-performing loans.
Reserve Fund and Triggers: The Reserve Fund has been drawn to 70%
of target level as a result of increasing defaults.The reserve
fund should be at target level for the pro rata amortisation conditions
to be satisfied, therefore amortisation of the mezzanine and junior
notes will remain sequential for as long as the reserve fund is below
The rating addresses 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 principal in respect of the
notes by the legal final maturity. Moody's ratings only address
the credit risk 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 Revising Default/Loss
Assumptions Over the Life of an ABS/RMBS Transaction published in December
2008. Please also refer to the "Italian RMBS Indices - December
2010", which is available on www.moodys.com in the
Industry/Sector Research sub-directory under the Research &
Moody's Investors Service did not receive or take into account a
third-party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
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 maintaining
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
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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
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's Investors Service has downgraded Italian RMBS notes issued by Sestante Finance S.r.l.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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