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Global Credit Research - 24 Feb 2011
EUR 1,559.5 million of debt securities rated
Frankfurt am Main, February 24, 2011 -- Moody's Investors Service has assigned definitive ratings to Notes issued
by UBI Finance 2 S.r.l.:
Aaa (sf) to the Class A Euro 1,559,500,000 Asset Backed
Floating Rate Notes due 2046
According to Moody's, the ratings take account of, among other
factors, the (i) simple and strong transaction structure defining
that all cash collections (reduced by senior fees) are paid as interest
and principal to the Class A notes and only after the repayment of Class
A notes the Class B notes will receive interest and principal amounts
and (ii) the increase in credit enhancement built-up below the
Class A notes since closing date in February 2009 due to the static nature
of the transaction combined with the portfolio amortization. Moody's
valued also positively the financial strength and securitization experience
of Unione di Banche Italiane S.c.p.A. ("UBI
Banca") as 100% parent company of the originator (Banco di Brescia
S.p.A.) and servicer, swap counterparty and
calculation agent in this transaction. Similarly, Moody's
considers the rating triggers to (i) appoint a back-up servicer
(upon loss of Baa1 of UBI Banca) and (ii) to re-direct the obligor
payments directly to an issuer's account (upon loss of Baa2 or P-3
of UBI Banca) tighter than in comparable transactions. Finally,
Moody's would like to note that the issuer has entered into several
interest rate swap agreements with UBI Banca (A1 / P-1).
These swaps are drafted to comply with Moody's standard swap de-linkage
criteria. However, we are advised that, if the swap
counterparty becomes subject to insolvency proceedings, the swaps
will terminate by operation of law. This gives rise to additional
linkage to the rating of the swap counterparty.
Moody's assigned a Composite V Score of "Medium" to this transaction,
which is in line with the Italian SME ABS sector. Nonetheless,
for four sub-categories Moody's considers this transaction better
than the market. First, the originator will disclose a comprehensive
set of performance data for this transaction. Second, Moody's
believes that the transaction complexity is lower than for comparable
transactions because it is a static transactions with a single waterfall,
no reserves included and all cash use dto pay interest and principal on
Class A before any amount is paid to Class B noteholders. Thirdly,
the back-up servicing arrangement is stronger as a back-up
servicer is appointed upon UBI Banca losing a minimum Baa1 rating.
Finally, since it is a transaction undertaken for ECB repo purposes
and UBI Banca as well as Banco di Brescia S.p.A.
retaining all notes the interests are strongly aligned.
Moody's main modeling assumption for this transaction is a normal
inverse default distribution which was used because of the granularity
of the portfolio. The parameter of the default distribution,
namely the mean default probability and its related standard deviation,
were derived via the analysis of (i) the characteristics of the loan-by-loan
portfolio information and the historical vintage data, (ii) the
potential fluctuations of the macroeconomic environment during the lifetime
of this transaction and (iii) the portfolio concentrations in terms of
industry sectors and single obligors via the Monte Carlo simulation in
CDOROM (v2.8). We expect the average default probability
of the pool to be a Ba2 / Ba3 Moody's equivalent (translating into
8.5% cumulative default rate over the weighted average life
of 4 years of the portfolio). The coefficient of variation (i.e.
the ration between standard deviation over mean default rate) was assumed
to be 52%, which leads to an implied asset correlation of
7.55%. Moody's assumed stochastic recoveries
with a mean recovery rate at 55% (which is slightly higher than
recoveries assumed in Italian lease transactions). The prepayments
are assumed to be at a level of 8% p.a.
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, and V Score and Parameter Sensitivities
in the EMEA Small-to-Medium Enterprise ABS Sector published
in June 2009.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments in this transaction.
For rating this transaction Moody's used the following model.
(i) ABSROM (v.2.2.9) to model the cash flows and
determine the loss for each tranche and (ii) CDOROM (V.2.8)
to estimate the standard deviation for the default distribution.
The transaction was closed in February 2009 and has accumulated some defaults
since then. Because Moody's was only asked to rate this transaction
at the beginning of 2011, Moody's modeled the outstanding
performing portfolio as of the cut-off date from 31.12.2010
in the cash flow model. At the same time Moody's assumed
that the note balance outstanding as of the payment date 14.01.2011
would have been reduced by the app. 805mn EUR cash accumulated
in the issuer's principal account since the closing date,
whereas in reality this cash will only be applied on next payment date
in July 2011 to reduce the class A note balance. Furthermore,
Moody's considered the following aspects in its cash flow model:
(i) the cumulative defaults in an amount of app. 72.4mn
EUR, (ii) an amortization and yield vector of the portfolio as derived
from the loan-by-loan data file as of the 30.11.2010,
(ii) an artificial timing of default vector equaling a sinus curve starting
immediately reaching the peak after 2 years and finishing after 4 years.
In combination with the above described default distribution and the other
model parameters, which are applied to the portfolio, these
parameters determine the cash flows for the portfolio in each period and
the so-determined cash flow is used to pay the senior costs as
well as interest and principal on Class A notes.
Finally, in certain scenarios Moody's assumed that the issuer
will lose some cash flow portions of the portfolio due to the potential
risk that - in case of a potential insolvency of the originator
- borrowers might set-off their obligations towards the
issuer against their claims against the originator resulting from current
account balances, deposits or positive market values in derivative
transactions. Because no concrete information is available we assumed
a set-off exposure of 20% that might potentially be lost
in case of the originator's insolvency, which we estimated
with a probability associated to an A3 rating equivalent.
Before Moody's decided on the ratings assigned to the class A notes
some parameter sensitivities were tested for this transaction.
The model sensitivity output indicated that Class A would have achieved
an Aaa rating even when testing the following 16 stressed scenarios derived
from different combinations of mean default rate (i.e. adding
a stress on the expected average portfolio quality) and recovery rate.
Specifically, we tested for the mean default rate: 8.5%
base case, 9.0%, 9.5% and 10.0%
mean default probability, and for the recovery rate: 55%
as base case, 25.0%, 45.0% and
40.0%. 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.
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, confidential and proprietary Moody's
Investors Service information, and confidential and proprietary
Moody's Analytics 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.
Frankfurt am Main
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
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 Deutschland GmbH
Moody's assigns definitive ratings to notes issued by UBI Finance 2 S.r.l
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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