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Global Credit Research - 10 Jun 2010
Approximately EUR 111 million outstanding debt securities rated
Milan, June 10, 2010 -- Moody's Investors Service said today that it has evaluated the impact
of a large reserve fund draw on payment date of 26 January 2010 in Italian
RMBS transaction CR Firenze Mutui S.r.l. The rating
agency has concluded that the reserve fund drawing and the events that
led to it do not have an immediate impact on the outstanding ratings of
the issued notes and that no rating action is necessary at this time.
RESERVE FUND DRAW
In January 2010, the reserve fund was drawn down to EUR478,024,
which is only 21.3% of its target of EUR2.2 million.
The level represented 0.4% as opposed to its target of 1.7%
of the outstanding rated notes. The cash reserve was partially
replenished on the payment date of 26 April 2010, to reach EUR1.1
million, which is still only 55.4% of the current
target of 2.1 million. Moody's understands that in
addition to limited performance-related issues, three main
events led to the reserve fund draw.
1) As a side-effect of the migration of the IT systems in July
2009 after the merger of the originator/servicer Banca CR Firenze S.p.A.
(A1/P-1) into Intesa Sanpaolo S.p.A. (Aa2/P-1),
some positions of the securitised portfolio lost their default flag and
other positions were erroneously classified as defaulted, leading
to the underestimation of the most senior class A2 amortisation amount
and the undue payment of certain amounts to items lower in the waterfall
(EUR326,000 as additional servicing fee and EUR674,000 as
interest on the class D notes). On the 26 January payment date
the error was corrected and the additional due amount was disbursed to
amortise the class A2 notes through a draw in the reserve fund.
On 23 February 2010, the originator/servicer reimbursed the SPV
with all the unduly received amounts.
2) In July 2009, software problems potentially affected the calculation
of due instalment amounts on a certain type of semi-annual loans
whose payments were scheduled in September: the IT department identified
preventively the potential error but related notices were already sent
to the clients. Therefore, clients paid based on these notices,
the amounts were transferred to the SPV's accounts and cash distribution
in the transaction took place based on this on the 26 October 2009 payment
date. Subsequently, the branches cancelled the erroneous
collections and registered the related positions as arrears, re-issued
the payment notices with the correct amounts and collected EUR907,000
of principal and EUR182,200 of interest. However, EUR53,000
of principal and EUR13,000 of interest had not been collected before
the 26 January 2010 payment date, resulting in some additional draw
on the reserve fund. The loans for which collection has not taken
place have been kept in delinquent classification. All the errors
and the correction occurred within one collection period, so the
only effect that could be seen on the January 2010 payment date is the
EUR53,000 of lesser collection and the increase of delinquencies
for a certain amount.
3) The cash reserve was drawn for an additional amount of approximately
EUR760,00 due to the different management of grace periods after
the due date of loan instalments. Banca CR Firenze's IT procedures
included the so-called Salvo Buon Fine (SBF) collection procedure
which is not part of Intesa Sanpaolo's Procedura Target.
SBF meant that a grace period of some days after the due date of the loan
payments was always granted and instalments paid during the grace period
were considered part of the accrued interest which was calculated as part
of the collateral portfolio. As the notes amortise for an amount
that is the difference between total notes outstanding and the collateral
portfolio, when the amount of accrued interest decreased,
the amortisation amount increased by approximately EUR900,000,
resulting in a onetime accelerated amortization of class A2 notes,
covered partially by excess spread and by the reserve fund draw.
Moody's understands that the reserve fund will be replenished with
any available excess spread in the upcoming collection periods.
On the 26 April 2010 payment date, the reserve fund was still drawn
as a result of a reduction of excess spread due to an increase in defaults
CR Firenze Mutui S.r.l. has been performing in line
with Moody's expectations. Our current lifetime loss expectation
of the portfolio is 1.7%, the credit protection required
for a Aaa-equivalent credit risk (MILAN Aaa CE) is 8.7%.
With a 24.7% pool factor, the transaction recorded
2.6% of cumulative default of original balance and 4.3%
total delinquencies of current balance on the latest reporting date on
26 April 2010. Credit enhancement in terms of cash reserve,
notes subordination and overcollateralisation has increased to 34.4%,
11.9% and 5.8% for the Aaa rated Class A2
notes, the A2 rated Class B notes and the Baa2 rated Class C notes,
respectively, from 8.6%, 3.1%
and 1.6% at closing. Part of the increase comes from
some over-collateralisation (EUR125.5 million pool is backing
EUR111.1 million of rated notes), due to the formula redemption
amount that is calculated as the difference between all the issued notes
(including unrated class D notes) and the performing portfolio (excluding
The errors have had an impact on the swap notional calculation as the
portfolio amount in October 2009 was reported erroneously (due to the
first event) and the swap notional is the arithmetic mean of the portfolio
in the three months of each collection period. The SPV has suffered
a small loss of EUR1,400 as a consequence and this led to an additional
draw on the reserve fund. The swap notional amount, which
is the same for both legs, has been corrected.
BANCA FIRENZE'S SERCIVING INFRASTRUCTURE - UPDATE
On 5 May, Moody's met with Banca CR Firenze Spa (Banca Firenze,
A1/P-1) to discuss changes to the servicing infrastructure since
Moody's prior visit. As a result of the merger of Banca Firenze
and Intesa Sanpaolo S.p.A. (ISP) in January 2008,
Banca Firenze 's policies and procedures have been aligned with
ISP's policies and procedures, its IT platform has been migrated
to ISP's IT platform and various functions (mainly back office)
are now performed centrally.
Delinquent borrowers are initially handled by the branch network.
If the loan, which exceeds a certain limit, is not cured within
approximately two months, ISP's territorial or regional departments
or headquarters take over the management of the loans until the earlier
of (i) the loan is classified as sofferenze by ISP's headquarters;
or (ii) the loan is cured.
ISP's non-performing loans (NPLs) department provides services
to ISP and its subsidiaries. This department comprises 16 regional
centres. One of the regional centres is based in Firenze and primarily
services Banca Firenze's NPLs. This regional centre has 16
staff, of which 13 were previously at Banca Firenze performing the
same function. Updated NPL procedures and policies will be implemented
by mid-year 2010. Depending on the exposure, the NPL
may either be sold, managed by a third party special servicer or
managed internally. Like some of its peers, ISP has already
reduced the number of solicitors and standardised its terms and conditions.
Moody's notes that the targeted ratio of loans per collector is
relatively high while the current ratio of loans per collector is at the
high end of Moody's range.
The investor reporting process and the audit function are also performed
by ISP's centralised departments.
After the review of the reserve fund draw, its causes and the applied
remedies as well as the current performance, Moody's concluded
that the current credit enhancement levels are still supportive of the
current rating levels. However, the rating agency will closely
monitor the servicing and the performance of this portfolio in future.
The transaction closed in December 2002, with Banca Firenze as originator/servicer.
The issued notes were backed by a portfolio of approximately 9,000
performing mortgage loans for a total amount of approximately EUR509 million.
At closing, all of the loans were considered "in bonis" (performing),
and had been granted to individuals for the purpose of purchase or development
of residential property ("mutui fondiari"). A first lien mortgage
("ipoteca") secures all of these loans.
Moody's rated and monitors this transaction using the rating methodology
for EMEA RMBS as described in the Rating Methodology report "Moody's Approach
to Rating Italian RMBS" published in December 2004 which can be found
at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
website. 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 ratings address the expected loss posed to investors by the legal
final maturity 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.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's: No Rating Impact on CR Firenze Mutui S.r.l. Italian RMBS from Reserve Fund Draw
No Related Data.
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