Moody's assigns definitive ratings to the senior CDS between Kreditanstalt fuer Wiederaufbau and the senior CDS counterparty as well as to 7 classes of CLNs issued by PROMISE XXS-2006-1 GmbH
Approximately EUR 4.45bn of Debt Securities and Credit Default Swap notional rated.
Frankfurt, December 20, 2006 -- Moody's Investors Service has assigned the following definitive ratings
to seven classes of credit linked notes issued by PROMISE XXS-2006-1
- Aaa to the EUR 0.25 million Class A+ Floating Rate
Credit Linked Notes;
- Aaa to the EUR 179.50 million Class A Floating Rate Credit
- Aa2 to the EUR 108.00 million Class B Floating Rate Credit
- A2 to the EUR 78.50 million Class C Floating Rate Credit
- Baa2 to the EUR 56.50 million Class D Floating Rate Credit
- Ba2 to the EUR 78.50 million Class E Floating Rate Credit
Linked Notes; and
- B3 to the EUR 45.00 million Class F Floating Rate Credit
Moody's has not assigned a definitive rating to the EUR 15.00 million
Class G Floating Rate Credit Linked Notes.
Moody's has not assigned a definitive rating to the EUR 34.50 million
Class H Floating Rate Credit Linked Notes.
In addition, Moody's has assigned a definitive rating to the Senior
Credit Default Swap between Kreditanstalt fuer Wiederaufbau ("KfW") as
the credit protection buyer and the senior credit default swap counterparty
in connection with the credit linked notes to be issued by PROMISE XXS-2006-1
- Aaa to the EUR 3896.60 million Senior Credit Default Swap.
PROMISE XXS-2006-1 GmbH is the sixth SME securitisation
done by HVB / BA-CA using the Promise platform.
The objective of the credit protection buyers, namely HVB and BA-CA,
under this transaction is to transfer the credit risk associated with
the two reference sub-portfolios, consisting on a combined
basis of 12,191 reference obligations relating to small and medium
sized companies in Germany and Austria in an equivalent amount of EUR
4,492,354,940, by entering into a guarantee with
KfW respectively. Under these guarantees KfW will be required to
compensate HVB/BA-CA for any residual realised losses in the reference
portfolio (after the application of synthetic excess spread on the relevant
KfW will in turn hedge its exposure to the combined reference pool through
a Senior Credit Default Swap and the issue of KfW Certificates,
which are purchased by Promise XXS-2006-1. PROMISE-XXS
2006-1 will fund the purchase of the KfW Certificates through the
issuance of various classes of notes having the same terms and conditions
as the certificates. Holders of the notes are exposed to losses
in the reference portfolio up to the total nominal amount of all classes
of notes issued by PROMISE XXS-2006-1.
The transaction includes a five-year replenishment period during
which new reference obligations can be replenished into the reference
portfolio subject to compliance with the replenishment criteria and the
replenishment suspension trigger. During the five-year replenishment
period, the reference portfolio outstanding amount follows a master
amortisation schedule. The maximum reference portfolio amount decreases
during this period according to the master schedule and after the end
of the five year period, a natural amortisation period of the reference
portfolio follows and ends on the scheduled maturity date in November
2021 (unless called earlier).
Interest on the notes will accrue on the notional balance of the notes
(as reduced by allocated losses or principal allocations and increased
by late recoveries or unjustified losses) and will be payable quarterly
in arrears. Principal repayments during the replenishment period
and during the amortisation period are allocated on a modified pro rata
basis as long as the outstanding portfolio balance is larger than 57%
of the initial portfolio balance. Thereafter principal allocations
to the notes are distributed in sequential order. The Class A+
Notes rank pro rata with the Senior Credit Default Swap. The Class
G Notes rank pro rata with the Class H Notes.
Residual realised losses will be allocated to the notes in reverse sequential
order in any period in which realised losses exceed the available synthetic
excess spread in an amount equal to the difference between the realised
losses and the available synthetic excess spread. The Class G Notes
rank pari-passu with the Class H Notes with respect to the allocation
of residual realised losses. The Class A+ Notes rank pari-passu
with the Senior Credit Default Swap with respect to the allocation of
residual realised losses.
According to Moody's, the ratings of the notes and the Senior Credit
Default swap are based, inter alia, on the following factors:
-The Class A+ to Class F Notes benefit from the subordination
of the respective lower tranches and all classes additionally benefit
from the synthetic excess spread mechanism as the first layer of credit
enhancement to cover realised losses occurring on the reference portfolio;
-KfW's proven Promise platform is used; PROMISE XXS-2006-1
is the sixth Promise transaction done by HVB / BA-CA;
-Moody's has received loss given default data that include interest
accrued and external enforcement costs;
-The mapping done by Moody's is based on historical one-year
internal rating migration matrices of HVB and BA-CA for the years
2001 until and including 2005;
-The transaction can be replenished for five years. The
replenishment criteria are only stating that the replenished portfolio
must not have a higher weighted average internal rating than the weighted
average internal rating of the portfolio before replenishment.
Moody's has taken this rather weak replenishment criteria into account
by increasing the initial default probability of the portfolio;
-The value of synthetic excess spread as credit enhancement to
the notes is strongly dependent on the timing of losses, as it is
only available on a quarterly "use it or lose it" basis. If there
is a peak in losses in one period, the synthetic excess spread will
not be large enough to cover the full realised losses of that period.
The realised losses of a period that are not covered by the available
excess spread of that period are the residual realised losses, which
will be allocated to the notes. Moody's has tested various default
spike scenarios (loss spike scenarios) in its rating analysis and notes
that the rating of the most junior notes is relatively sensitive to the
loss timing assumption;
-The loss definition includes interest accrued and external enforcement
costs. The increased potential loss amount is incorporated in the
analysis as the loss given default data provided by HVB already takes
interest accrued and external enforcement costs into account;
-The principal allocation is not fully sequential but rather follows
a "modified pro rata" principal allocation, where the degree of
pro rata amortisation will depend on the level of outstanding defaults,
losses allocated to the notes and the availability of synthetic excess
spread - the higher the outstanding defaults and the higher the
allocated losses and the lower the synthetic excess spread, the
more sequential is the principal allocation. The negative effects
of a pro rata principal allocation structure on the senior notes are mitigated
by the modification of a strict pro rata principal allocation and the
sequential principal allocation trigger. Moody's has modelled the
exact principal allocation mechanism and has thereby taken this feature
-Obligor concentrations are higher compared to PROMISE XXX-2003-1.
The largest obligor group accounts for 1.00% of the reference
portfolio, the top 10 obligor groups account for 9.49%
and the top 50 account for 27.75% of the reference portfolio.
Moody's has taken this obligor concentration into account by using CDOROM
to measure the volatility of the default rate distribution.
-Previous Promise transactions done by the two credit protection
buyers perform in line with Moody's expectations.
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 the legal final maturity with respect to the Class A+ Notes to
the Class D Notes only. 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.
Moody's assigned provisional ratings to this transaction on 21 November
Moody's will monitor this transaction on an ongoing basis. For
updated monitoring information, please contact firstname.lastname@example.org.
To obtain a copy of Moody's New Issue Report on this transaction,
please visit Moody's website at www.moodys.com or contact
our Client Service Desk in London (+44-20-7772 5454).
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 Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454