Approximately EUR 251.9 million of debt securities affected
Milan, August 19, 2010 -- Moody's has assigned definitive ratings to the following classes
of notes issued by Mercurio Mortgage Finance Srl:
Aaa (sf) to the EUR 594,000,000 Class A Mortgage Backed Floating
Rate Notes due 2037
Aa1 (sf) to the EUR 10,700,000 Class M1 Mortgage Backed Floating
Rate Notes due 2037
A1 (sf) to the EUR 17,700,000 Class M2 Mortgage Backed Floating
Rate Notes due 2037
Baa2 (sf) to the EUR 8,800,000 Class B Mortgage Backed Floating
rate Notes due 2037
The current outstanding balance of the different classes are approximately:
Class A EUR 223.0 million; Class M1 EUR 8.3 million;
Class M2 EUR 13.8 million; Class B EUR 6.8 million.
The definitive ratings take into account (i) that the pool has a WALTV
that is in line with other Italian RMBS transactions; (ii) the fact
that 90.2% of the borrowers have never been in arrears since
the loan was disbursed together with the exceptionally long weighted average
seasoning of around ten years which reduces the MILAN Aaa CE number significantly
(iii) the financial and operational strength of Barclays Bank PLC (Aa3/P-1).
Moody's considered as weaknesses of the transaction the missing
data for employment type, occupancy type, credit bureau data
from Centrale dei Rischi and 69.9% of the portfolio consist
of loans with increasing instalments.
The transaction represents the first securitisation of Italian residential
mortgage loans originated by Barclays Bank PLC (previously Banca Woolwich
S.p.A., now Barclays Bank PLC) , Milan
Branch (Barclays), rated Aa3/Prime-1. The assets supporting
the notes, which amount to around EUR 250.52 million,
are prime mortgage loans secured on residential properties located in
Italy. The portfolio will be serviced by Barclays. Moody's
had not issued public ratings for these notes previously.
Some relatively unique structural aspects of this transaction are:
(i) the very weak PDL mechanism that only partially "write off"
defaulted loans, by trapping excess spread, since only 35%
of their principal outstanding balance have been debited to the PDL at
default (12 payments missed) which together with the relatively lengthy
legal recovery process in Italy has created a situation where the notes
have an under-collateralisation equal to around 0.56%
of the pool balance; and (ii) the portfolio is un-hedged with
respect to base rate mismatches and timing mismatches of the base rates.
Moody's has considered all these three features in its cash flow
Moody's assigned a Composite V Score for this transaction at the
Low/Medium upper bound based on Moody's V Score rating methodology
as published in the report "V-Scores and Parameter Sensitivities
in the Major EMEA RMBS Sectors" published in April 2009, which is
in line with the V score assigned for the Italian RMBS sector.
The main factors to note in the V-score are: (i) the Complexity
and Market Value Sensitivity is Medium mainly driven by the abovementioned
non-standard PDL mechanism for the Italian market; and (ii)
the Disclosure of Securitisation and Collateral Pool Characteristics is
at Medium given that the data for employment type, occupancy type
and the credit bureau data from Centrale dei Rischi are all missing in
the updated pool cut that Moody's has received. 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. High variability in key assumptions could expose a
rating to more likelihood of rating changes.
The expected portfolio loss of 1.1% and the MILAN Aaa required
credit enhancement of 6.8% serve as input parameters for
Moody's cash flow and tranching model, which is based on a probabilistic
lognormal distribution as described in the report "The Lognormal Method
Applied to ABS Analysis", published in September 2000. The
expected loss number which is slightly lower than the Italian average
for this sector takes into account: (i) dynamic delinquency figures
that seven years after the issuance of the notes currently stands at around
1% of the current balance compared with an Italian RMBS index of
around 1.7%; (ii) the low amount of defaults that have
been experienced so far; (iii) a weighted average seasoning of around
ten years for the pool; and (iv) ten years of static pools for recoveries
that show recoveries in line with the Italian market.
Moody's Parameter Sensitivities: If the Expected Loss was increased
from 1.1% to 3.3%, the model output
indicated that Classes A, M1, M2 and B would have achieved
Aaa, Aa2, Baa2 and B2 assuming that MILAN Aaa CE remained
at 10.88% and all other factors remained the same.
Moody's Parameter Sensitivity 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 used
in the initial rating process differed. The analysis assumes that
the deal has not aged and 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 key rating input parameters
were varied. Qualitative factors are also taken into consideration
in the ratings process, so the actual ratings that would be assigned
in each case could vary from the information presented in the Parameter
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 schedule principal
with respect of the notes by the legal final maturity. 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.
The principal methodologies used in rating the Mercurio Mortgage Finance
S.r.l. were "Moody's Approach to Rating Italian RMBS",
published in December 2004 and "Cash Flow Analysis in EMEA RMBS:
Testing Structural Features with the MARCO Model (Moody's Analyser of
Residential Cash Flows)", published in January 2006. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.Moody's
Investors Service received and took into account one third party due diligence
report on the underlying assets or financial instruments in this transaction
and the due diligence report had a neutral impact on the rating.
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, parties not involved in the ratings
(including third party due diligence), public information and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer 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.
Additional research, including the new issue report for this transaction
and reports for prior transactions, are available at www.moodys.com.
In addition, Moody's publishes a weekly summary of structured
finance credit, ratings and methodologies, available to all
registered users of our website, at www.moodys.com/SFQuickCheck.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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.
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
Moody's Italia S.r.l
Moody's assigns definitive ratings to the RMBS notes issued by Mercurio Mortgage Finance Srl
Corso di Porta Romana 68