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Announcement:

Moody's Plans to Publish Structured Finance Ratings Indicator

14 Jul 2010

New York, July 14, 2010 -- As previously announced on October 27, 2009, Moody's intends to add an indicator to its new and existing ratings of structured finance instruments. Moody's intends to implement this change globally by August 2, 2010.

The indicator will take the form of "(sf)" and will appear following the rating in all of Moody's press releases and research reports -- e.g., "Aa3(sf)" when referring to a specific rating. It will appear in a separate rating indicator field on moodys.com and in Moody's data products. The (sf) indicator will only denote that the rating assigned is for a structured finance instrument.

The (sf) indicator will be used to satisfy the requirements under the European Regulation on Credit Rating Agencies (the "EU Regulation"). In addition, instruments with the (sf) indicator are the type that Moody's believes to be "structured finance instruments" within the meaning of the U.S. Securities and Exchange Commission's Rule 17g-5(a)(3) and (b)(9) ("Amended Rule").

Moody's application of the (sf) indicator to an instrument does not necessarily mean that Moody's is applying the Amended Rule to that instrument. This is because the Amended Rule applies only to Moody's ratings of structured finance instruments where, among other things, Moody's initiated the rating process on or after June 2, 2010 and cannot rely upon a temporary exemption that the SEC has granted in respect of ratings on structured finance instruments that are issued by non-U.S. persons and offered and sold outside the U.S.

While subject to change, the following are among the instruments to which Moody's intends to apply the (sf) indicator:

1. Asset backed commercial paper (ABCP)

2. Asset backed securities (ABS), including instruments backed by student loans

3. Government sponsored enterprise and agency (e.g., Fannie Mae, Freddie Mac, Ginnie Mae, etc.) mortgage backed securities (MBS) excluding agency MBS backed transactions issued by U.S. state and local housing finance agencies

4. Collateralized debt obligations (CDOs)

5. Closed-end fund debt or preferred equity of funds that invest in structured finance instruments

6. Commercial mortgage backed securities (CMBS)

7. Credit linked notes, repackaged securities, or structured notes of one or more structured finance instruments or with credit tranching

8. U.S. state and local housing finance agencies that issue three or more classes of debt (the (sf) indicator will be applied to these instruments on a later date)

9. Principal protected notes secured by one or more structured finance instruments even if the promise is not based on structured finance instruments

10. Residential mortgage backed securities (RMBS)

11. Structured investment vehicle (SIV) instruments

12. Whole business securitizations (e.g., instruments backed by restaurant franchise royalties and pub securitizations, etc.)

While subject to change, the following are among the instruments or ratings to which Moody's does not intend to apply the (sf) indicator:

1. Covered bonds

2. Credit linked notes, repackaged securities or structured notes of non-structured finance instruments without credit tranching

3. Derivative product company (DPC) ratings

4. Enhanced equipment trust certificates (EETCs)

5. Government enterprises instruments (e.g., instruments of water & sewer authorities, airports, power authorities, U.S. state and local housing finance agencies that issue fewer than three classes of debt, toll road authorities, etc.)

6. Interest only and principal only strips and other pro-rata slices of non structured finance instruments

7. Money market and bond fund ratings

8. Pass through financings of non-structured finance instruments issuing a single tranche (e.g., a pass through of 5 corporate bonds)

9. Project and corporate infrastructure financings (e.g., instruments for which the primary source of repayment is revenue generated from the operation of infrastructure assets such as power plants, chemical processing plants, mines, energy, transportation, environment, telecommunications infrastructure, housing projects, etc.)

Moody's underlying rationale for applying the indicator, established after internal reviews as well as discussions with market participants, is based on the definition of "structured finance instrument" in the EU Regulation, the description of "structured finance" contained in the Amended Rule, and other similar concepts in other legislation and international principles such as Basel II (hereinafter collectively referred to as the "Regulations").

Moody's sought to define "structured finance instrument" as objectively as possible. Our definition is not tied to our ratings criteria, but rather is based on specific language in the Regulations. For instruments that were difficult to categorize we also considered general market practice.

In general, the key principles that we use for determining whether an instrument is included as a structured finance instrument include:

• Payments depend upon the performance of an exposure/pool of exposures.

• The existence of a special purpose entity and whether economic interests are transferred to such special purpose entity.

• The instruments are not obligations of or full or substantially full recourse to the originator/sponsor.

• The presence of securitization tranching. We further interpret "tranching" as contemplated in paragraph 539 of Basel II dealing with traditional securitizations: "The stratified/tranched structures that characterize securitizations differ from ordinary senior/subordinated debt instruments in that junior securitization tranches can absorb losses without interrupting contractual payments to more senior tranches, whereas subordination in a senior/subordinated debt structure is a matter of priority of rights to the proceeds of liquidation".

• The presence of a guarantee or insurance policy either covering losses on the underlying assets or issued bonds typically would not impact the categorization of whether an instrument is a structured finance instrument.

As a result of the many factors that Moody's considers in its definition of a 'structured finance instrument", Moody's may apply the (sf) indicator to some instruments that market participants may not have considered to be structured finance instruments. Conversely, the indicator may not be applied to securities that some market participants may consider to be structured finance instruments.

New York
Warren Kornfeld
MD - Structured Finance
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

London
Frederic Drevon
MD - Regional Head EMEA
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Plans to Publish Structured Finance Ratings Indicator
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
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