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14 Jan 2011
EUR 1.45 Billion of debt securities rated
London, 14 January 2011 -- Moody's Investors Service has today assigned the following definitive
long-term credit ratings to the asset-backed notes issued
by SAGRES - Sociedade de Titularizacao de Creditos, S.A.:
....EUR1,107 M Class A Asset Backed
Floating Rate Notes, Assigned Aaa(sf) on review for possible downgrade
....EUR 369 M Class B Asset Backed Floating
Rate Notes, Assigned A2(sf)
The notes are backed by a revolving pool of loans extended to small and
medium sized enterprises (SMEs) established in Portugal. The loans
are originated by Banco Espírito Santo (A2 / P-1 both on
review for possible downgrade). The assets consist of approximately
70% regular term loans, and 30% Commercial Paper (CP)
which matures within 90 to 180 days on average. The CP is issued
by borrowers and subscribed to under programs set up by Banco Espírito
Santo (BES) and is primarily used to fund working capital requirements.
The ratings take into account the credit quality of the underlying pool
of SME loans from which Moody's determined the various model parameters,
the transaction structure, legal risks, as well as the uncertainty
associated with the strength of the Sovereign and the Portuguese financial
system as described below.
Moody's assumed a default rate of 5.5% on the initial
portfolio which has a WAL of 2.2 years, and a default rate
of 2.3% on substitute pools which are assumed to have a
WAL of just less than 1 year. An implied asset correlation of 8%
was assumed for both initial and replenished portfolios which equates
to a CoV of 55%. A stochastic recovery rate was assumed
with a mean of 35% and standard deviation of 20%.
Prepayment rates were assumed to be 10%.
The default rate assumptions listed above are derived using Moody's
"Top-Down" approach, whereby an average through
the cycle rating for Portuguese SMEs is determined by considering historical
default and insolvency data. This rating is then adjusted on a
loan by loan basis by considering various pertinent factors, including
the borrower sector, the repayment profile and the broader economic
The assets are linked to Euribor rates of varying tenors, with reset
dates at varying times, whereas the liabilities pay 3 month Euribor,
resetting in February, May, August and November. This
exposes the transaction to a degree of basis risk, and Moody's
has treated this by applying a haircut to the asset yield. This
basis risk is negative for the transaction in scenarios of steeply rising
interest rates, and therefore we have considered a base haircut
of 100bps to the asset yield, as well as an additional haircut of
50 bps for the first two years of the transaction. This stress
is the reverse of the steeply falling rates witnessed in the second half
of 2009, but continued over four years.
The credit enhancement figures also cover extreme loss events that may
arise due to a sovereign crisis, or systemic banking crisis.
The probability of such an event was modeled as equivalent to a rating
of A3, and the severity was assumed to be an additional 30%
loss in such a scenario.
Moody's also considered the high levels of losses that could arise
due to the insolvency of the Servicer / Originator. This event
was assumed to have a probability equivalent to Baa2, and the severity
in these instances was 20% additional loss.
Moody's ratings of the Portuguese government and Banco Espírito
Santo ('BES'), the originator and servicer in this transaction,
are currently under review for possible downgrade. Due to the inherent
uncertainties around asset performance in the event of a systemic crisis
or servicer disruption, a degree of linkage exists between the ratings
of the notes, the sovereign and BES. Although Moody's
believes that the ratings of the notes may be confirmed once these reviews
are concluded, there remains some possibility that the note ratings
could be downgraded should the government or servicer ratings move into
the lower of the indicated ranges. Therefore the senior notes are
assigned a rating of Aaa under review for possible downgrade. "If
a rating action is taken, a downgrade of one or two notches is possible,
but with the rating remaining in the Aa range" said Nicholas de
Swardt, Vice President -- Senior Analyst at Moody's.
Moody's assigned a Composite V Score of M/H to this transaction based
on Moody's V Score rating methodology as published in the report "V-Scores
and Parameter Sensitivities in the EMEA Small-to-Medium
Enterprises ABS Sector" in June 2009 on www.moodys.com.
V Scores are a relative assessment of the quality of available credit
information and the potential variability around the various inputs in
determining the rating. V Scores are intended to rank transactions
by the potential for significant rating changes owing to uncertainty around
Moody's Parameter Sensitivities: Moody's principal portfolio
model inputs are the mean default probability and the mean recovery value
assumption. In the Parameter Sensitivity analysis, we assumed
default probability scenarios ranging from 5.5% to 7.5%
and mean recovery value scenarios ranging from 35% to 25%.
The 5.5% / 35% scenario represents the base case
used to assign the ratings. The parameter sensitivity of the ratings
in the transaction ranges from Aaa to Aa2 for the Class A Notes and from
A2 to Baa1 for the Class B Notes.
Moody's Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's-rated
structured finance security may vary if certain input parameters used
in the initial rating process differed. The analysis assumes that
the deal has not aged and is not intended to measure how the rating of
the security might migrate over time, but rather how the initial
rating of the security might have differed if key rating input parameters
were varied. Parameter Sensitivities are calculated by stressing
key variable inputs in Moody's primary rating model.
The principal methodologies used in this rating were "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, "Moody's Approach
to Rating the CDOs of SMEs in Europe" published in February 2007,
"V Score and Parameter Sensitivities in the EMEA Small-to-Medium
Enterprise ABS Sector" published in June 2009 and "Historical
Default Data Analysis for ABS Transactions in EMEA" published in
Moody's Investors Service received and took into account a third
party due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
Moody's has used a normal inverse distribution to describe the default
distribution of the portfolio. This distribution is parameterized
as described above in order to derive the probability of the different
default scenarios on the assets. In each default scenario,
the asset side cash flows are generated and passed through the liability
model to generate the losses on the various classes of notes. The
expected loss on each class of notes is calculated by taking the average
of the note losses in each such scenario, weighted by the probability
of such a scenario occurring.
In addition to the defaults generated by the asset side loss distribution,
further extreme loss scenarios are assumed to occur. These scenarios
include a loss of 30% in a Banking Crisis, and a loss of
20% in the event of a servicer insolvency, as described above.
The rating addresses 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 principal with respect to the
notes by the legal final maturity.
Moody's ratings only address the credit risk associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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 Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
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.
Nicholas de Swardt
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
MD - Structured Finance
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's assigns definitive ratings to Asset Backed Floating Rate Notes issued by SAGRES - Sociedade de Titularizacao de Creditos, S.A.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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