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
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
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
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",
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
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
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
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.
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.
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Service(s) to the rated entity or its related third parties within the
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Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Frankfurt am Main
MD - Structured Finance
Structured Finance Group
Moody's Deutschland GmbH
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Moody's assigns definitive ratings to notes issued by Italfinance Securitisation Vehicle 2 S.R.L ( ITA 11)
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