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Rating Action:

Moody's assigns definitive ratings to TdA Lico Leasing III's granular ABS notes

05 Oct 2012

EUR 78 million of securities rated

Madrid, October 05, 2012 -- Today Moody's Investors Service assigned definitive ratings to ABS notes issued by TdA Lico Leasing III, FTA:

....EUR78M Bonos, Assigned A3 (sf)

Moody's has not assigned any rating to EUR 59.0M Préstamo B.

TdA Lico Leasing III, FTA is a securitisation of credit rights (interest and principal, excluding the purchase option and VAT) derived from financial lease contracts granted by Lico Leasing (Ba3/NP; ratings under review for downgrade) to Spanish small and medium size enterprises (SMEs) and self-employed individuals.

Lico Leasing is acting as Servicer of the loans while Titulización de Activos S.G.F.T., S.A (TdA). is the Management Company ("Gestora"). To mitigate any operational risk Link Financial Group (NR) has been appointed at closing as the back-up servicer. Link Financial Group will only step in at the discretion of the management company which acts as a back-up servicer facilitator and independent cash manager.

RATINGS RATIONALE

The provisional pool of underlying assets comprised credit rights derived, as of July 2012, from a portfolio of over 5,883 lease contracts to 4,206 debtors. The contracts were mainly originated between 2008 and 2012, with a weighted average seasoning of 1.8 years and a weighted average remaining term of 3.6 years. In terms of underlying assets, most of the outstanding of the portfolio finance vehicles. Geographically, the pool is located mostly in Andalusia (19.4%), Catalonia (13.0%) and Galicia (10.3%). At closing, there will be no loans with more than 30 days in arrears. As of July 2012 the provisional pool was €149,030,497 of which a pool of €137,000,000 will be selected at closing.

According to Moody's, the ratings take account of, among other factors, (i) a loan-by-loan evaluation of the underlying portfolio of loans; (ii) historical performance information; (iii) the non-amortizing cash reserve (3.0% of the total pool); (iv) the appointment of a back-up servicer and of a back-up servicer facilitator at closing; and (v) the sound legal structure of the transaction. More precisely, the notes benefit from non amortizing cash reserve amounting overall to 3.0% of the pool. This cash reserve serves as a liquidity cushion and as such it is only available to cover interest shortfalls on the rated notes and items senior thereto during the lifetime of the transaction. Nevertheless, this liquidity cushion will be available as credit enhancement when the notes are fully redeemed or at final legal maturity.

Moody's notes this deal benefits from several credit strengths: (i) granular portfolio with effective number of 1030; (ii) a well diversified pool all over Spain; (iii) short weighted average life of 1.9 years (iv) static structure; (v) no exposure to real estate leasing; and (iv) an up-front funded reserve fund representing 3% of the pool. Moody's notes that the transaction features a number of credit weaknesses, including: (a) the transaction is exposed to interest rate and basis risk; (b) commingling risk as there is a non-investment grade trigger of Ba2 on the account bank; (c) non-investment grade servicer; (d) legal uncertainty associated with the leased asset recoveries upon default of the originator; (e) sovereign risk. These characteristics were reflected in Moody's analysis and ratings, where several simulations tested the available 46.1% total credit enhancement (i.e. notes subordination and reserve fund) for the notes to cover potential shortfalls in interest or principal envisioned in the transaction structure.

In its quantitative assessment, Moody's assumed an inverse normal default distribution for this transaction due to the high granularity of the portfolio. The rating agency derived the default distribution, 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 8.05% (equivalent to B1 proxy) with a coefficient of variation (i.e. the ratio of standard deviation over mean default rate) of around 97%. The rating agency has assumed stochastic recoveries with a mean recovery rate of 50% and a standard deviation of 20%. In addition, Moody's has assumed prepayments to be around 10% per year.

Moody's also tested other set of assumptions under its Parameter Sensitivities analysis. For instance, if the assumed default probability of 8.05% used in determining the initial rating was changed to 11.3% and the recovery rate of 50.0% was changed to 40%, the model-indicated rating for the notes of A3(sf) would have not changed. For more details, please refer to the full Parameter Sensitivity analysis included in the Presale report of this transaction.

The global V Score for this transaction is Medium/High, which is in line with the score assigned for the Spanish SME sector and representative of the volatility and uncertainty in the Spanish SME sector. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. The main sources of uncertainty in the analysis relate to the Analytical Complexity and to the Back-up Servicer Arrangement. These elements have been assigned a Medium/High and Medium V-Score respectively, as opposed to Medium and Low assignments for the sector V-Score, respectively. For more information, the V-Score has been assigned accordingly to the report "V Scores and Parameter Sensitivities in the EMEA Small-to-Medium Enterprise ABS Sector" published in June 2009.

On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today's rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.

Moody's noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for 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: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.

The methodologies used in this rating were Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa published in June 2007, and 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. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

For rating this transaction Moody's used the following models: (i) ABSROM to model the cash flows and determine the loss for each tranche and (ii) CDOROM to determine the coefficient of variation of the default definition applicable to this transaction.

More specifically, Moody's ABSROM cash flow model evaluates all default scenarios that are then weighted considering the probabilities of such default 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 is a Monte Carlo simulation which takes borrower specific Moody's default probabilities as input. Each borrower reference entity is modelled individually with a standard multi-factor model incorporating intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. In each Monte Carlo scenario, defaults are simulated.

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.

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, 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_SF299871.

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.

Javier?Hevia Portocarrero
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Thorsten Klotz
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns definitive ratings to TdA Lico Leasing III's granular ABS notes
No Related Data.
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