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Rating Action:

Moody's assigns definitive ratings to notes issued by Italfinance Securitisation Vehicle 2 S.R.L ( ITA 11)

24 Feb 2011

EUR 410.57 million of debt securities rated

Milan, February 24, 2011 -- Moody's Investors Service has assigned definitive ratings to Notes issued by Italfinance Securitisation Vehicle 2 S.R.L ( ITA 11):

....EUR1031.6M A Note, Assigned Aaa (sf)

RATINGS RATIONALE

Italfinance Securitisation Vehicle 2 SRL is a cash securitization of lease receivables extended to obligors located in Italy by Banca Italease ("Italease"/ Baa3/P-3) and Mercantile Leasing ("Mercantile" -- 100% owned by Italease), two Italian leasing company part of the Banco Popolare Group (A2/P-1).

The transaction closed in January 2009 and was initially not rated by Moody's. The total notes balance issued at closing amounted to EUR 1,375.5 million. The outstanding notes balance as of last payment date in January 2011 amounts to EUR 754.5 million, with the Class A outstanding notes balance at Eur 410.57 million. The Class B notes (not rated) amount has remained unchanged at EUR 343.9 million.

Moody's analysis of the notes is based on their outstanding principal amount after the latest payment date.

The outstanding performing EUR 735.2 million portfolio of underlying assets was, as of 3rd January 2011 , composed of 13,591 contracts granted to 10,316 borrowers, either Italian professionals or SMEs. Assets are represented by financial lease receivables belonging to three different pools: real estate (53.2%), equipment (34.1%) and motor-vehicles (12.7%).

The leases were originated between 1995 and 2008, with a weighted average seasoning of 3.2 years and a weighted average remaining term of 7.49 years. The interest rate is floating for 81.5% of the pool, the weighted average margin over the index being 1.7%. 18.5% of the portfolio is instead represented by fixed rate leases, with a weighted average rate of 6.7%. Geographically, the pool is concentrated in the Northern Italian region of Lombardy (33%) where the originator is actually located, while -- as far as industry concentration is concerned - the "Construction & Building" sector represents 36% of the pool.

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 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. Furthermore the current performing portfolio includes a number of deteriorated positions, with 3.5% of the portfolio being represented by delinquent lease. In addition, EUR 38.5 million are represented by defaulted lease contracts.

On the other hand, Moody's notes as credit strengths the granularity of the portfolio in terms of borrower and the static nature of the deal. Moody's also underlines the undertaking on the part of Italease to support the transaction ensuring that the notes are consistently fully collateralized. Italease support ensures that all defaulted loans are either repurchased (at minimum 75% of their nominal value) or funded by additional liquidity. This form of support clearly creates a level of linkage to Italease, which Moody's has taken into account.

Due to: 1) the fact that historical performance data available only referred to previous outstanding transaction by Italease and did not cover an entire economic cycle, not fully capturing the current economic environment, and 2) the nature of the underlying debtors (SMEs), Moody's complemented the analytical approach as described in the Special report "Multi-pool Financial Lease Backed Transactions in Italy", June 2006 with the analytical 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 analysis focused primarily on (i) an evaluation of the underlying portfolio of leases; (ii) historical performance information on the previous outstanding transactions launched by Italease and other statistical information; (iii) the credit enhancement provided by the pool spread 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 15.5% with a coefficient of variation of 50% and a fixed mean recovery rate of 70%.

Moody's used in combination its CDOROM model (to generate the default distribution) and 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 ratings address the expected loss posed to investors by the legal final maturity of the notes (October 2031). 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, as the structure includes an appointed back-up Servicer ready to step in as soon as Italease is downgraded below Ba3. 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 to the report "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 also ran sensitivity around key parameters for the rated notes. For instance, if the assumed default probability of 15.5% used in defining the initial rating was changed to 17.5% and the recovery rate of 70% was changed to 50%, the model indicated rating for the Class A notes would not change.

The principal methodology used in this rating was Multi-pool Financial Lease Backed Transactions in Italy, published in June 2006.

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.

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.

However, the credit rating action was based on limited historical data.

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
SUBSCRIBERS: 44 20 7772 5454

Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's assigns definitive ratings to notes issued by Italfinance Securitisation Vehicle 2 S.R.L ( ITA 11)
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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