EUR 1,365 million original balance of debt securities affected
Milan, February 28, 2011 -- Moody's Investors Service has assigned definitive ratings to Notes issued
by F-E Red S.r.l.:
EUR1365M A Note, Assigned Aaa (sf)
RATINGS RATIONALE
F-E Red S.r.l. is a cash securitization of
lease receivables extended to obligors located in Italy by Fineco Leasing
S.p.A. ("Fineco Leasing"), an Italian
leasing company 100% owned by Unicredit S.p.A.
(Aa3/P-1- "Unicredit"). The transaction is the fourth
public transaction by the same originator.
The transaction initially closed in March 2009 with no Classes rated by
Moody's. The initial Class A notes balance issued at that time
amounted to EUR 1,365 million. The outstanding rated notes
balance as of last payment date in January 2011 amounts to EUR 1,237.6
million. The Class B notes (not rated) amount has remained unchanged
at EUR 340 million. Moody's analysis of the Class A notes
rating is based on their amount after the latest payment date.
The existing EUR 1.6 billion portfolio of underlying assets was
composed of 23,691 contracts granted to 15,594 borrowers,
either Italian professionals or SMEs. Assets are represented by
financial lease receivables belonging to three different pools:
real estate (approx. 69%), equipment (approx.
13%) and motor-vehicles (approx. 18%) as of
31/12/2010. In fact, in February 2011 Fineco Leasing transferred
a further EUR 250 million portfolio, composed of 5,338 lease
contracts granted to 3,966 borrowers, either professional
or SMEs. Approximately half of this portfolio was represented by
motor-vehicles lease contracts, with only 23% being
represented by real estate contracts.
The current total portfolio is made up of 29,029 contracts for 18,714
borrowers. Real estate lease receivables still make up the largest
portion at 63%, with the balance being represented by motor-vehicle
leases (22%) and equipment leases (15%). The large
majority (97.8%) of the lease contracts pay on a monthly
basis. The leases were originated between 2001 and 2010,
with a weighted average seasoning of 30.9 months and a weighted
average remaining maturity of 106.7 months. The interest
rate is floating for 91.8% of the pool. Geographically,
the pool is concentrated in the Northern Italian region of Lombardy (42.6%)
where the originator is actually located, while --
as far as industry concentration is concerned - the "Construction
& Building" sector represents 28% of the pool. While
the "new" portfolio at transfer date (February 2011) did not
include any lease in arrears, the existing portfolio included 4.5%
of delinquent leases and 2.5% of defaulted positions.
The securitised portfolio does not include the so-called "residual
value option", i.e. the installment that the lessee
has the option to pay at the end of the contract to acquire full ownership
of the leased asset.
Moody's notes as credit strengths the granularity of the portfolio,
whose effective number is in excess of 1,500, and the current
static nature of the deal, whose revolving period expired in October
2010. Moody's also underlines that the originator and servicer
of the deal (Fineco Leasing) , although not rated, is part
of Unicredit group (Aa3/P-1). Furthermore, they have
undertaken to appoint a Back Up Servicer as soon as Unicredit is downgraded
below Baa3 or Fineco Leasing ceases to be part of Unicredit group.
On the other hand Moody's notes that the transaction features a number
of credit weaknesses, including the important exposure to the highly
cyclical Construction and Building sector and the rather long weighted
average life of 4 years, in addition to the inclusion of deteriorated
position in the portfolio as outlined above.
Moody's analysis focused primarily on (i) an evaluation of the underlying
portfolio of leases; (ii) historical performance information on both
originator portfolio as well as the previous outstanding transaction launched
by Fineco Leasing and other statistical information; (iii) the credit
enhancement provided by the pool spread, the cash reserve (fully
funded and usable to repay notes principal amount at deal maturity) and
the subordination of the notes; and (iv) the legal and structural
integrity of the transaction. Moody's also took into consideration
the legal uncertainty associated with recoveries on leased assets following
potential bankruptcy of the originator, by running simulations where
it further stressed the recoveries on defaults.
The resulting key assumptions of Moody's analysis for this transaction
are a mean default of 13.2% with a coefficient of variation
of 46% and a stochastic mean recovery rate of 50%.
Moody's used its ABSROM cash-flow model to determine the
potential loss incurred by the notes under each default scenario.
In parallel, Moody's also considered non-modeled risks
(such as counterparty risk).
The principal methodology used in this rating was Multi-pool Financial
Lease-Backed Transactions in Italy, published in June 2006.
Due to: 1) the fact that historical performance data provided (although
extensive) did not cover an entire economic cycle and did not fully capture
the current economic environment, and 2) the nature of the underlying
debtors (SMEs), Moody's complemented the analytical approach with
the approach used for rating of EMEA SME ABS transactions as described
in the Rating Methodology reports "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", March
2009 and "Moody's Approach to Rating Granular SME Transactions in Europe,
Middle East and Africa", June 2007.
Moody's Investors Service did not receive and take into account
a third party due diligence report on the underlying assets or financial
instruments in this transaction.
The ratings address the expected loss posed to investors by the legal
final maturity of the notes (October 2040). In Moody's opinion,
the structure allows for the timely payment of interest and ultimate payment
of principal on the Class A notes at par on or before the final legal
maturity date. Moody's ratings address only the credit risks
associated with the transactions. Other non-credit risks
have not been addressed, but may have a significant effect on yield
to investors.
The V Score for this transaction is Medium, which is in line with
the score assignable to the Italian Leasing sector and representative
of the volatility and uncertainty in the Italian Leasing Sector.
Moody's notes that Transaction Complexity is Low/Medium: although
the portfolio is made of several products (auto-vehicle lease,
equipment lease and real estate receivables), the structure is fairly
standard and does not even include -- at current stage - a
revolving period. Back-up Servicer Arrangement is Low/Medium,
Fineco Leasing is 100% by Unicredit (Aa3/P-1) and there
is an undertaking to nominate a Back Up Servicer as soon as Unicredit
is downgraded below investment grade or Fineco Leasing ceases to be part
of Unicredit group. 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. For more
information, the V-Score has been assigned accordingly in
reports such as "V Scores and Parameter Sensitivities in the Global Consumer
Loan ABS Sectors", published in May 2009 and "V Scores and
parameter Sensitivities in the EMEA Small-to-Medium Enterprise
ABS Sector" published in June 2009.
Moody's Parameter Sensitivities: Moody's principal portfolio model
inputs are Moody's cumulative default rate assumption and the recovery
rate. Moody's tested 9 scenarios derived from different combinations
of mean default rate and recovery rate. Specifically, Moody's
tested for the mean default rate: 13.2% as base case,
14.2% (base case + 1%) and 15.2%
(base case +2%), and for the recovery rate: 50%
as base case, 45% as well as 40%. The model
sensitivity output indicated that Class A would have achieved a Aaa rating
even if the cumulative mean default probability had been as high as 14.2%
and the recovery rate as low as 45% (all other factors being constant).
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 would
change.
No previous Moody's ratings were assigned to this transaction.
REGULATORY DISCLOSURES
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, public information, and confidential
and proprietary Moody's Investors Service 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.
Milan
Valentina Varola
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
Frankfurt am Main
Thorsten Klotz
MD - Structured Finance
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
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Moody's Italia S.r.l
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Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's assigns definitive ratings to notes issued by F-E Red S.r.l.
