Approximately EUR1,592.5 million of rated debt securities affected.
London, 14 April 2011 -- Moody's Investors Service announced today that it confirmed the
class A2 notes and upgraded the class B and class C notes issued by BP
Mortgages S.r.l. In addition, Moody's
confirmed the class A2, class B and class C notes issued by BP Mortgages
S.r.l. Series 2007-2.
Complete rating action is as follows:
Issuer: BP Mortgages S.r.l.
....EUR1172.65M A2 Notes, Confirmed
at Aaa (sf); previously on Aug 12, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
....EUR25.3M B Notes, Upgraded
to Aa2 (sf); previously on Aug 12, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR32.6M C Notes, Upgraded
to A3 (sf); previously on Aug 12, 2010 Baa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: BP Mortgages S.r.l. - "Series
2007-2"
....EUR1382M A2 Notes, Confirmed at
Aaa (sf); previously on Aug 12, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
....EUR28.2M B Notes, Confirmed
at Aa3 (sf); previously on Aug 12, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR36.2M C Notes, Confirmed
at Baa1 (sf); previously on Aug 12, 2010 Baa1 (sf) Placed Under
Review for Possible Downgrade
The ratings of all outstanding notes in BP Mortgages S.r.l.
(BP1) and BP Mortgages S.r.l. Series 2007-2
(BP2) were placed on review for possible downgrade in August 2010 for
worse than expected performance of the collateral backing the notes.
RATINGS RATIONALE
Today's rating action concludes the review of BP Mortgages S.r.l.
and BP Mortgages S.r.l. Series 2007-2 and
takes into consideration performance of the collateral to date and the
structural amendments implemented in both transactions.
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
losses). 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
transactions.
The structural amendments relate to an increase in credit enhancement
for all rated notes in both transactions. Subordinated loans were
granted by the originators to BP1 and BP2 to replenish their respective
cash reserves and to repay the outstanding unpaid Principal Deficiency
Ledger (PDL) in both transactions. The transaction documents were
also amended to enable the originators to repurchase defaulted loans from
the issuer at future payment dates should the cash reserves be drawn below
50% of their target level. As a result of these changes,
all classes of notes have been positively impacted by an increase in credit
enhancement above the levels at issuance. In particular,
subordination available under class A2 notes of BP1 and BP2 increases
to 13.1% and 12.2% respectively. In
addition the senior notes will further benefit from the provisioning of
unpaid PDL at the next IPD.
Portfolio Expected Loss:
Moody's has reassessed its lifetime loss expectation for BP1 and
BP2 by taking into account the collateral performance to date and the
current macroeconomic environment in Italy. The performance has
deteriorated since the last rating review in July 2009. Cumulative
defaults, as a percentage of original balance, increased from
1.57% to 3.80% in BP1 and from 1.82%
to 4.56% in BP2 since the last review. Despite a
recent stabilisation in arrears trends, Moody's believes that
the collateral performance will remain sensitive to Italian economic conditions.
Moody'sEconomy.com estimates that Italian GDP growth will slow
to 0.6% this year from 1.0% in 2010.
Italy's unemployment rate was 8.7% in the December
quarter 2010 and the seasonally adjusted jobless rate rose to 8.5%,
the highest in over seven years, from 8.4% in the
quarter to September. It is expected that the Italian labour market
will continue to face difficulties in the coming quarters thus impacting
the ability of borrower's to repay loans. Moody's therefore increased
its loss expectations for the BP1 portfolio to 3.0% of original
balance from 2.00% assumed in July 2009 and to 3.42%
for the BP2 portfolio from 2.2% in July 2009.
MILAN Aaa CE:
Moody's has assessed the loan-by-loan information
to determine the MILAN Aaa CE consistent with target rating levels.
The MILAN Aaa CE has been increased to 10% in BP1 from 6%
assigned in July 2009 and to 12% in BP2 from 6% assigned
in July 2009. The increase in the MILAN Aaa CE reflects the current
performance and composition of the securitised loan pool. A penalty
is applied to those loans deemed more risky than the Italian benchmark
loan according to Moody's Approach to Rating Italian RMBS published in
December 2004.
Notwithstanding the increase in assumptions, Moody's upgraded
the class B and C notes and confirmed the class A2 notes issued by BP
Mortgages S.r.l. whilst confirming the ratings of
all classes issued by BP Mortgages S.r.l. Series
2007-2. This positive rating action is driven by the levels
of credit enhancement, which sufficiently support the ratings.
Available credit enhancement under BP Mortgages S.r.l.
class B and C notes increased since closing to around 9.3%
and 4.5% from 3.25% and 1.0%
respectively.
The primary source of assumption uncertainty relates to the weak macroeconomic
environment and negative sector outlook for Italian RMBS. Moody's
therefore tested the sensitivity of all ratings to various stress scenarios
by increasing the lifetime losses and the MILAN Aaa CE as well as decreasing
recovery amounts and adjusting loss timing. The sensitivity analysis
concluded that the upgraded ratings on the notes were not affected.
TRANSACTION FEATURES
Payment holiday: Loans granted a payment holiday under the Piano
Famiglie scheme would no longer be classified as defaulted from January
2011. These loans will be held in their current delinquency bracket
as determined at the time payment holiday status was granted. This
will reduce the rate of increase in cumulative defaults given that payment
holiday loans were 9.2% of total defaults in BP1 and 12.4%
of total defaults in BP2 by January 2011.
Hedging: In BP1 excess spread in the transaction is guaranteed by
the swap counterparty, Credit Suisse (Aa1/P-1), at
1.355% of the performing portfolio. In BP2 there
are two swap agreements, one for the Banco Popolare di Novara SpA
originated portfolio, excess spread guaranteed at 1.38%
of the performing portfolio and one for the Credito Bergamasco S.p.a
originated portfolio, excess spread guaranteed at 1.46%
of the performing portfolio. The swap counterparty is UBS (Aa3/P-1)
in both agreements.
Servicing: Banca Popolare di Novara and Credito Bergamasco,
originators and servicers to BP2, are unrated but part of the A2/P-1-rated
Banco Popolare Società Cooperativa (Banco Popolare). Banco
Popolare di Verona e Novara Scarl (today Banca Popolare di Verona SpA)
originated and services the BP1 portfolio. Banco Popolare guarantees
the timely performance of the payment obligations of the servicers and
the BP1 documents provide for the appointment of a back-up servicer
in case Banco Popolare loses Baa3 rating. Banca Banco Popolare
was appointed as back-up servicer facilitator in BP2 at issuance.
Reserve Fund and Triggers: The Reserve Funds have been replenished
to target level as a result of subordinated loans issued by the originators.
In BP2 the reserve fund target was increased to 1.2% from
0.7% of note balance at issuance because the cumulative
net default ratio exceeded the 2% trigger level. In addition,
the reserve funds will not amortise for the remaining life of both transactions
because cumulative defaults have exceeded the amortisation condition at
2.6% of original balance. In addition, the
amortisation profile of the notes will remain sequential for the remaining
life of both transactions for breach of this same performance condition.
Set-off risk: Moody's also considered set-off risk
in its analysis. Based on data available for the Italian market,
Moody's made assumptions on the amount of deposits that debtors in this
transactions had when mortgage loans were assigned to the issuer at closing.
Using the originators' parent rating (Banco Popolare Società Cooperativa;
A2/P-1) in its cash flow analysis, Moody's has assessed the
impact of set-off on the notes if the originator became insolvent
at different time horizons.
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 with 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. Moody's also took into account its Rating Implementation
Guidance Global Structured Finance Operational Risk Guidelines:
Moody's Approach to Analyzing Performance Disruption Risk published in
March 2011, in its analysis.
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 & Ratings tab.
Moody's Investors Service received and took into account a third
party due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a positive impact
on the rating.
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 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
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.
London
Daron Kularatnam
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Barbara Rismondo
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.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service takes action on Italian RMBS notes issued by BP Mortgages S.r.l.
