EUR 1,555 Million of debt securities rated
Milan, April 20, 2011 -- Moody's Investors Service has assigned the following definitive ratings
to the ABS notes issued by Red & Black Consumer Italy S.r.l.
(the "Issuer"):
Aaa (sf) to EUR1,555M Class A Asset Backed Floating Rate Notes due
July 2029
Moody's has not assigned ratings to the subordinated EUR 373,350,000
Class B Notes.
RATINGS RATIONALE
The subject transaction is a cash securitisation of auto loans extended
to borrowers resident in Italy and is a revolving structure. The
portfolio consists of auto loans for the acquisition of new or used cars
extended to both small corporate and individual borrowers.
The transaction closed in Oct. 2009. The Class A notes will
partially amortise down beginning at the next payment date in April 2011
and will continue to amortise until it reaches EUR 1,100 Million
(which will be equivalent to 78% of the outstanding portfolio at
that time). Once the Class A Notes reach this level, the
transaction will begin again to revolve (subject to triggers and eligibility
criteria) until Oct. 2012. The liquidity reserve,
which was funded through principal collections, will be 2%
of the Class A Notes.
This deal benefits from several credit strengths, such as the granularity
of the securitised portfolio, as well as certain structural features
such as the presence of an independent cash manager able to calculate
payment of interest if no servicer report is available. Moody's
however notes that the transaction features a number of credit weaknesses,
such as the presence of an unrated servicer, as well as a 18-month
revolving period, which increases the potential performance volatility
of the underlying portfolio. There is commingling risk, though
partially mitigated, as well as claw-back risk on the portion
of the portfolio made of loans to commercial debtors. These characteristics,
amongst others, were considered in Moody's analysis and ratings.
The rating on the notes takes into account, among other factors,
(i) an evaluation of the underlying portfolio of loans; (ii) historical
performance information; (iii) the fix-floating swap agreement,
which mitigates the interest rate mismatch between assets and liabilities;
(iv) the credit enhancement provided by the excess spread; (v) the
provisions for the appointment of a back-up servicer; and
(vi) the legal and structural integrity of the transaction.
The V Score for this transaction is Low/Medium, which is in line
with the score assigned for the German/French Auto loan sector.
Some notable features pertain to the Medium score for "Disclosure of Securitization
Performance " as a reporting error was found in the servicer report;
however, this error has already been fixed and there will be an
annual audit on this report. The "Transaction Complexity"
has been assigned a M score due to some peculiar non-standard structural
features such as the dynamic credit enhancement during the revolving period.
The " Disclosure of Securitization Performance " has been assigned a L/M
score, in line with the Consumer loan Italian market score for this
category, given that reporting of performance data is not condensed
in one single report. For more information on V Scores, please
see the report "V Scores and Parameter Sensitivities in the Non-U.S.
Vehicle ABS Sector", published in January 2009.
In its quantitative assessment, Moody's assumed a mean default rate
of 5.5% for the current portfolio and 6.5%
for portfolios acquired during the revolving period, with a coefficient
of variation of 40% and a recovery rate of 20% as the main
input parameters for Moody's cash-flow model ABSROM. In
its base case scenario, Moody's also assumed a constant prepayment
rate of 8%.
The principal methodologies used in this rating were The Lognormal Method
Applied to ABS Analysis published in July 2000 and Moody's Approach to
Rating European Auto ABS published in November 2002.
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 ABSROM to model the cash
flows and determine the loss for each tranche. In the cash flow
model, once all of the asset side modelling assumptions are input,
the model produces a series of default scenarios that are weighted considering
the probabilities of the lognormal distribution assumed for the portfolio
defaults. 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 or EL for each tranche is the sum product
of (i) the probability of occurrence of each default scenario; and
(ii) the loss expected in each default scenario for each tranche.
Moody's Parameter Sensitivities: Moody's principal portfolio model
inputs are Moody's cumulative default rate assumption and the recovery
rate. Moody's tested various scenarios derived from different combinations
of mean default rate (i.e. adding a stress on the expected
average portfolio quality) and recovery rate. For example,
Moody's tested for the mean default rate: 5.5% as
base case ranging to 7.5% and for the recovery rate:
20% as base case ranging to 10%. The model sensitivity
output indicated that Class A model output was from Aaa to A1 in these
scenarios (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. The
analysis assumes that the deal has not aged. It is not intended
to measure how the rating of the security might migrate over time,
but rather, how the initial rating of the security might have differed
if the two parameters within a given sector that have the greatest rating
impact were varied.
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
by legal final maturity of class A Notes. 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
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
Paula Lichtensztein
Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
Milan
Alex Cataldo
Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
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 the ABS notes issued by Red & Black Consumer Italy S.r.l.
