EUR 443 million of debt securities rated
Frankfurt am Main, July 27, 2012 -- Moody's Investors Service has assigned the following definitive ratings
to ABS SME notes issued by Voba N. 4 S.r.l.
(the "Issuer"):
....EUR443M Class A Asset Backed Floating
Rate Notes due 2050 , Assigned A2(sf)
Voba N. 4 S.r.l. is a static cash securitisation
of secured and unsecured predominantly amortizing loans to self-employed
individuals and small and medium-sized enterprises (SME) domiciled
in the North-East of Italy extended by Banca Popolare dell'Alto
Adige S.C.p.A. (Ba1/NP).
According to Moody's, the ratings take into account, among
other factors, (i) a loan-by-loan evaluation of the
underlying portfolio of loans; (ii) historical performance information;
(iii) the sequential priority of payment structure defining that all cash
collections are first paid as interest and principal to the Class A note
holders; (iv) the amortizing cash reserve (2.0% of
the collateral balance initially) funded with the proceeds of the issuance
of the junior notes that can be used to pay senior fees and interests
on Class A; (v) the appointment of a back-up servicer and
of a back-up servicer facilitator at closing; and (vii) the
sound legal structure of the transaction.
Moody's notes that the transaction benefits from several credit strengths,
such as (i) the granularity of the portfolio in terms of exposure by borrower
(with an effective number of 429); (ii) 60.4% of the
portfolio is secured by real estate properties and, in particular,
43.8% of the portfolio is secured by first lien mortgages;
and (iii) the sequential priority of payment structure defining that all
cash collections are first paid as interests and principal to the Class
A note holders. In light of the Cass A amount this implies a credit
enhancement of 26.3% (excluding the reserve fund) plus excess
spread from the yield on this portion of the portfolio.
Moody's notes that the transaction also features a number of credit weaknesses,
such as: (i) the servicer can renegotiate several terms and conditions
of the loans up to certain limits, such as the loan maturity,
the type of interest rate up to 4% of the initial portfolio and
the yield on the loans up to 5% of the initial portfolio (although
the yield loss is compensated by the originator) and grant principal payment
grace periods up to 8% of the initial portfolio; (ii) some
exposure to commingling risk and set-off risk; and (iii) some
concentration in the regions of Trentino and Alto-Adige (70.6%
of the portfolio) with the remainder of the pool predominantly in the
Veneto region; (iv) some concentration in particular in the building
and real estate sector of the pool (around 29.5% of the
portfolio, according to Moody's industry classification).
These characteristics, amongst others, were considered in
Moody's analysis and ratings.
As of the Valuation Date, 31 May 2012, the overall collateral
balance including accrued interest amounts to EUR 601.3 million.
This portfolio is composed of 3,714 contracts granted to 3,107
borrower groups. About 71% of the portfolio are micro-sized
SME borrowers. The portfolio is granular with the top 50 borrowers
accounting for 26.3% of the total portfolio. The
loans were originated between 2006 and 2012, with a weighted average
seasoning of approximately 2.1 years and a weighted average life
of approximately 5.1 years. The interest rate is floating
for 96.2% of the pool, the initial weighted average
margin over the index for the floating pool is 1.97%.
In its quantitative assessment, Moody's derived the characteristics
of the default distribution for this transaction, namely the mean
default probability and its related standard deviation, via the
analysis of: (i) the characteristics of the loan-by-loan
portfolio information and the historical vintage data; (ii) the potential
fluctuations in the macroeconomic environment during the lifetime of this
transaction; and (iii) the portfolio concentrations in terms of industry
sectors and single obligors.
Moody's assumed the cumulative default probability of the portfolio to
be 17.3% (equivalent to a B1 Moody's equivalent rating over
the weighted average life of the loan portfolio) with a coefficient of
variation (i.e. the ratio of standard deviation divided
by the mean default rate) of around 46% and an implied asset correlation
of around 9%. The rating agency has assumed stochastic recoveries
with a mean recovery rate of 47%, a standard deviation of
20% and a weighted average recovery time of around 4.3 years
after the default occurrence. In addition, Moody's has assumed
the prepayments to be around 5% per year. Furthermore,
Moody's has considered: (i) the amortisation and a stressed yield
vector of the portfolio (accounting for the yield compression due to prepayments
and basis risk due to different reference rates and reset dates for notes
and assets); and (ii) an initial set-off and commingling exposure
of 3.2%.
Moody's also tested other set of assumptions under its Parameter Sensitivities
analysis. The results show that the model output would be 2 notches
lower if the default rate assumption was to increase to 22.89%,
all other parameters being kept unchanged. Similarly, the
model output would be 2 notches lower if the recovery rate assumption
was to decrease to 27%. For more details, please refer
to the full Parameter Sensitivity analysis included in the New Issue Report
of this transaction.
The main source of uncertainty in the analysis relates to (i) the servicer's
renegotiation possibilities (ii) the concentration of borrowers in the
more vulnerable construction & building sector. Otherwise,
the uncertainty is comparable to other recently rated Italian SME loan
receivable securitisations and as such the transaction was assigned a
Medium V-Score, which is in line with the Italian SME ABS
sector V-Score. For more details please refer to the New
Issue Report of this transaction.
As the Euro area crisis continues, the rating of the structured
finance notes remains exposed to the uncertainties of credit conditions
in the general economy. The deteriorating creditworthiness of euro
area sovereigns as well as the weakening credit profile of the global
banking sector could negatively impact the ratings of the notes.
Furthermore, as discussed in Moody's special report "Rating Euro
Area Governments Through Extraordinary Times -- An Updated
Summary," published in October 2011, Moody's is considering
reintroducing individual country ceilings for some or all Euro area members.
In addition, according to the Press release "Moody's downgrades
Italy's government bond rating to Baa2 from A3, maintains negative
outlook" dated 13 July 2012, Moody's has lowered the
country ceiling for Italy to A2. Accordingly, the maximum
structured finance rating achievable in Italy has been lowered to A2 and
therefore in line with the rating assigned to the notes.
The methodologies used in this rating were Moody's Approach to Rating
CDOs of SMEs in Europe published in February 2007, Refining the
ABS SME Approach: Moody's Probability of Default Assumptions in
the rating analysis of granular Small and Mid-sized Enterprise
portfolios in EMEA published in March 2009, Moody's Approach to
Rating Granular SME Transactions in Europe, Middle East and Africa
published in June 2007, and Historical Default Data Analysis for
ABS Transactions in EMEA published in December 2005. Please see
the Credit Policy page on www.moodys.com for a copy of these
methodologies.
Moody's notes that on 2 July 2012 it released a Request for Comment in
which the rating agency requested market feedback on potential changes
to its rating implementation guidance for the risk from the temporary
use of cash in structured finance transactions. If the revised
rating implementation guidance is implemented as proposed, the rating
on the Notes should not be negatively affected. Please refer to
Moody's Request for Comment, entitled "The Temporary Use of Cash
in Structured Finance Transactions: Eligible Investment and Bank
Guidelines", published July 2012. For further details
regarding the implications of the proposed methodology changes on Moody's
ratings.
Other Factors used in this rating are described in V Scores and Parameter
Sensitivities in the EMEA Small-to-Medium Enterprise ABS
Sector published in June 2009, and Global Structured Finance Operational
Risk Guidelines: Moody's Approach to Analyzing Performance
Disruption Risk published in June 2011.
For rating this transaction Moody's used the following models: (i)
ABSROM (v.3.1.1) to model the cash flows and determine
the loss for each tranche and (ii) CDOROM (V.2.8) to determine
the coefficient of variation of the default definition applicable to this
transaction.
More specifically, the Moody's ABSROM cash flow model evaluates
a set of default scenarios that are then weighted by the probabilities
of these scenarios as defined by the transaction-specific default
distribution. On the recovery side Moody's assumes a stochastic
(normal) recovery distribution which is correlated to the default distribution.
In each default scenario, the corresponding loss for each class
of notes is calculated given the incoming cash flows from the assets and
the outgoing payments to third parties and noteholders. Therefore,
the expected loss for each tranche is the sum product of (i) the probability
of occurrence of each default scenario; and (ii) the loss derived
from the cash flow model in each default scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
Moody's used CDOROM to determine the coefficient of variation of the default
distribution for this transaction. The Moody's CDOROM™ model
performs a Monte Carlo simulation of defaults based on borrower specific
Moody's default probabilities and other characteristics which are input
into the model. Each borrower reference entity is modelled individually
with a standard multi-factor model incorporating global,
intra-industry and inter-industry correlation. The
correlation structure is based on a Gaussian copula.
The ratings address 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 ultimate payment of principal
with respect to the Notes by legal final maturity. 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.
No previous ratings were assigned to this transaction.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the 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 did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments in this transaction.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF292361.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's 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 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.
Matthias Wahl
Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Stefan?Augustin
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns definitive ratings to ABS SME notes issued by Voba N. 4 S.r.l.
