Reviews reflect impact of sovereign risk on structured finance transactions
London, 13 March 2013 -- Moody's Investors Service has today placed on review for downgrade
the ratings of 60 classes of notes in 41 residential mortgage-backed
securities (RMBS) and 7 asset-backed securities (ABS) transactions
in Spain, Italy and Ireland due to potentially insufficient credit
enhancement. The determination of the applicable credit enhancement
that drives today's rating actions reflects the introduction of
additional factors in Moody's analysis to better measure the impact
of sovereign risk on structured finance transactions (see "Structured
Finance Transactions: Assessing the Impact of Sovereign Risk",
11 March 2013). The introduction of the new factors will also affect
the outcome of the rating reviews initiated by Moody's in 2012 for
ABS and RMBS securities in Ireland, Portugal, Italy and Spain.
Insufficient credit enhancement, as compared with country and asset-class
specific minimum levels, drove these reviews.
Moody's anticipates that potential downgrades relating to the introduction
of the new adjustments will generally be around three notches.
Moreover, they will mostly affect mezzanine and junior classes in
(1) ABS transactions backed by small and medium-sized enterprises
(SMEs) and leases, auto-loans and consumer assets; as
well as (2) RMBS transactions, in Ireland, Portugal,
Spain and Italy. The rating agency plans to conclude within six
months all open rating reviews related to the adjustments. It will
announce its conclusions for each transaction or group of transactions
on an ongoing basis over this period, starting with Spanish ABS
and RMBS and followed by Italian RMBS. These two markets comprise
the majority of transactions on review.
The reviews will also consider the increase in counterparty risks resulting
from a deteriorated sovereign credit environment where fewer viable counterparties
are able to serve as transaction parties. The inability of key
transaction parties to perform their roles and difficulty in replacing
them increases the risk of payment disruption and performance deterioration.
Please see the detailed list of rating actions in the data table under
the following link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF320241.
This table is an integral part of this press release.
RATINGS RATIONALE
-- Downgrade Reviews Reflect Insufficient Credit Enhancement
Today's actions reflect the identification of potentially insufficient
credit enhancement for the affected transactions to maintain their ratings,
following the introduction of additional factors designed to better reflect
the impact of sovereign risk on structured finance transactions.
Today's action supplements those that Moody's announced in
2012, for ABS and RMBS securities in Ireland, Portugal,
Italy and Spain that did not meet country and asset-class specific
minimum credit enhancement levels. The conclusion of Moody's
structured finance rating reviews related to sovereign risk will consider
the level of credit enhancement effectively required in each case,
as well as the protection afforded by structural protection features such
as excess spread.
More precisely, all of the ABS securities that Moody's has
today placed on review have credit enhancement below the portfolio credit
enhancement applicable for their relevant maximum achievable rating.
For the RMBS securities that Moody's has today placed on review,
the credit enhancement required (1) under the Milan CE and (2) to protect
against set-off risks exceeded the available credit enhancement.
Where sufficient data was unavailable, Moody's assumed an
average set-off exposure of 6.5% of the portfolio
for Italian transactions and 2.6% in Ireland. In
addition, Moody's applied a stressed set-off exposure
for banks rated below Ba3. The conclusion of Moody's rating
review for these transactions will incorporate any further information
that may become available on detailed set-off exposures in the
affected transactions.
-- Additional Factors Determine Loss Distribution
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the Local Currency Country Risk
Ceiling, or "LCC") and the applicable portfolio credit
enhancement for this rating. With the introduction of these additional
factors, Moody's intends to better reflect increased sovereign
risk in its quantitative analysis, in particular for mezzanine and
junior tranches. See "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk" for a more detailed explanation of the additional
parameters. This report is available on www.moodys.com
and can be accessed via the following link: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319988.
-- Moody's Updates Methodologies for Affected Transactions
The adjustments made to Moody's analysis for assessing the impact
of sovereign risk on structured finance transactions now forms part of
the relevant asset class methodologies, which the rating agency
updated on 11 March 2013. As part of this update, Moody's
published the following additional rating methodology reports:
- Incorporating Sovereign Risk to EMEA Auto Loan Methodology
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319469.
- Incorporating Sovereign Risk to Moody's Approach to Rating
CDO's of SMEs in Europe SMEs
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319471.
- Incorporating Sovereign Risk to Multi-Pool Financial Lease-Backed
Transactions in Italy
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF319472.
These methodology reports are designed to be read in conjunction with
the following principal methodology reports for the relevant asset classes:
- Moody's Approach to Rating European Auto ABS, 19
November 2002
http://www.moodys.com/research/Moodys-Approach-to-Rating-European-Auto-ABS--PBS_SF17579.
- Moody's Approach to Rating CDOs of SMEs in Europe,
1 February 2007
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF90480.
- Moody's Approach to Rating Multi-Pool Financial
Lease-Backed Transactions in Italy, 12 June 2006
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF76255.
To reflect the new adjustments, Moody's has updated and republished
the following methodology reports:
- Moody's Approach to Rating Consumer Loan ABS Transactions
http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF184265.
- Moody's Approach to Rating RMBS Using the MILAN Framework
http://www.moodys.com/research/Moodys-Approach-to-Rating-RMBS-Using-the-MILAN-Framework--PBS_SF274702.
Please see the data table under the following link to see the applicable
principal methodology report for each affected security: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF320241.
--Rating Sensitivity Highlighted
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating. Moody's has revised the portfolio credit
enhancement associated with the maximum achievable rating for the transactions
it today placed on review. Any further change to this assumption
would have a rating impact. As a comparison of available credit
enhancement against the revised targets drove today's action,
the rating agency did not run any cash flow analysis nor did it run specific
stress scenarios for the purpose of placing the subject rating on review.
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Marcello Vicarelli
Analyst
Structured Finance Group
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
Christophe?de Noaillat
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 Reviews for Downgrade Multiple ABS and RMBS Ratings
