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Rating Action:

Moody's Rates Fideicomiso Financiero Programa Federal Plurianual de Construcción de Viviendas - Provincia del Chaco - Serie II in Argentina

 The document has been translated in other languages

14 Mar 2011

ARS 13,700,000 in Debt Securities Affected

Buenos Aires, March 14, 2011 -- Moody's Latin America (Moody's) has assigned a rating of A2.ar (sf) (Argentine National Scale) and of B3 (sf) (Global Scale, Local Currency) to the VRD (securities) of Fideicomiso Financiero Programa Federal Plurianual de Construcción de Viviendas - Provincia del Chaco - Serie II (the trust) issued by Instituto Provincial de Desarrollo Urbano y Vivienda de la Provincia del Chaco (IPDUV Chaco), acting as seller to the transaction. The VRD will be an obligation of the trust.

RATING RATIONALE

This is the second series issued under this program. Interest and principal payments will be made on a prorata basis with the first series issued under this program. When assigning the rating to Series I under this program, Moody's considered the debt service coverage ratios calculated at the entire program's permitted issuance amount (ARS 360 million).

The debt securities will bear a floating interest rate (BADLAR Public) plus 200 basis points. Interest and principal will be paid on a quarterly basis, the 10th business day of January, April, July and October, beginning on April 15, 2013. Accrued interest from closing date until the first payment date will be capitalized on a quarterly basis. The legal final of the transaction will take place 15 years after closing.

Instituto Provincial de Desarrollo Urbano y Vivienda de la Provincia del Chaco (IPDUV Chaco), an autarchic entity of Province of Chaco, assigned without recourse to the trust, the collections derived from loans to purchase low income houses, existing and to be built, in the Province of Chaco, Argentina (IPDUV loans). Issuance proceeds will be used to build 701 low-income houses in the Province of Chaco. The Province of Chaco is rated A3.ar (National Scale Rating) and B3 (Global Scale, Local Currency).

The transaction also benefits from a guaranty trust, which will receive the transfers from the National Housing Fund (FONAVI - Fondo Nacional de la Vivienda) corresponding to IPDUV Chaco. According to National Law 24,464 and Provincial Law 4,368, IPDUV Chaco is entitled to receive 4.6% of FONAVI collections. This cash flow can be used as a secondary source of repayment in case collections on the IPDUV loans are not sufficient to cover debt service. Moody's did not provide significant credit to the primary cash flow of the transaction; therefore the ratings are mainly based on the FONAVI cash flows flowing through the guaranty trust.

The assignment of the FONAVI cash flow to the guaranty trust will be formalized through public deed. In addition, the trustee will notify the assignment to: (i) the National Ministry of Economy and Public Finances, (ii) the Undersecretariat of Housing and Urban Development, and (iii) Banco Hipotecario.

The FONAVI cash flow will be deposited automatically into the trust account of the guaranty trust, and will remain in that account for 24 hours, to be then transferred to IPDUV Chaco, unless instructed otherwise by the trustee. The FONAVI cash flow will be available to pay debt service if the collections on the IPDUV loans are insufficient.

Moody's considered the risk that the IPDUV Chaco (or the Province of Chaco) may attempt to interfere with the assignment of the FONAVI cash flow to the guaranty trust. Moody's notes that there are negative precedents in Argentina in transactions involving pledges of another federal transfer, federal coparticipation taxes. In these cases, certain provinces have successfully claimed in court that the pledge of federal coparticipation taxes should not be respected in times of economic emergency of the province assigning the flows. However, according to Moody's there are no similar negative precedents in transactions backed by pledged FONAVI flows. Unlike federal coparticipation taxes, funds from FONAVI are earmarked and can only be used for social housing. Therefore, it is less likely that the province could successfully claim in court that the pledge of FONAVI funds should not be respected and that the funds be used for general purposes during a scenario of economic distress. The documents of the transaction indicate that in case of interference with the FONAVI flows or the IPDUV loans, investors will have a claim against the IPDUV and/or the Province directly.

Moody's believes that the likelihood that the province would attempt to interfere with the assignment of FONAVI funds is correlated with the credit risk of the Province of Chaco, which is rated A3.ar (National Scale Rating) and B3 (Global Scale, Local Currency). Therefore, if the rating of the Province is downgraded, the rating of the VRD will likely be downgraded.

FONAVI is funded primarily by a percentage (33.18%) of the collection on the fuel taxes. A modification of the regulatory framework of FONAVI or a failure of the Argentine National Government to transfer these funds to the Province of Chaco could affect the FONAVI flows, which are critical for the repayment of the VRD.

Moody's analyzed the cash flow coverage levels considering both the flows from IPDUV loans and from FONAVI.

Moody's developed a cash flow model that takes into account the most relevant features of the transaction's assets and liabilities. Monte Carlo simulations were run, which determine the expected loss for the rated securities.

In assigning the rating to this transaction, Moody's assumed a certain haircut for the expected cash flow coming from the IPDUV loans, based on triangular distributions. For existing houses, Moody's assumed a haircut with a minimum of 30%, most likely of 65% and maximum of 100%. For new houses financed by this issuance, Moody's assumed a haircut with a minimum of 50%, most likely of 75% and maximum of 100%. Finally, for other future housing programs, Moody's assumed a haircut with a minimum of 80%, most likely of 90% and maximum of 100%.

Also, Moody's assumed an Inverse Gaussian distribution for the interest rate with a mean of 10.65% and delta of 7.01%. These assumptions were derived from the historical performance of the collateral and the reference interest rate. Moody's notes that the interest rate on the VRD is variable based on the Badlar Public rate, without a cap or a floor.

Finally, Moody's assumed an initial value for FONAVI's annual collections of ARS 70 million. To forecast future performance, the annual growth rate was modeled using a triangular distribution with a minimum -5% annual increase, a most likely of 0% and a maximum of 5%.

After running the Monte Carlo simulations, the expected loss of the rated securities was consistent with a B3 (sf) rating.

The main uncertainties in this transaction are the collection levels of the IPDUV loans, and also the volatility of the reference interest rate.

Moody's did not receive or take into account a third party due diligence report on the underlying assets or financial instruments in this transaction.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

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.

Buenos Aires
Martin Fernandez Romero
Vice President - Senior Analyst
Structured Finance Group
Moody's Latin America, Calificadora de Riesgo
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 4816-2332

New York
Maria Muller
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Latin America, Calificadora de Riesgo
Cerrito 1186, 11th fl
Buenos Aires C1010AAX
Argentina
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 4816-2332

Moody's Rates Fideicomiso Financiero Programa Federal Plurianual de Construcción de Viviendas - Provincia del Chaco - Serie II in Argentina
No Related Data.
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