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Announcement:

Moody's comments on transaction amendments relating to Italian non performing loan securitisation Island Refinancing S.r.l.

13 Apr 2011

London, 13 April 2011 -- Moody's has today commented on the latest performance data and on certain documentation amendments effected by Island Refinancing S.r.l. (the "Issuer").

RATING RATIONALE

This transaction represents the refinancing of two previous securitisations, namely Island Finance (ICR4) S.p.A. and Island Finance 2 (ICR7) S.r.l. The closing portfolio of Island Refinancing S.r.l consisted of claims over 4,952 non-performing business plan credit lines secured by mortgages and by 2,872 non-performing unsecured business plan credit lines (the "Portfolio"). The Portfolio was originated by Banco di Sicilia ("BdS") and is currently serviced by Prelios Credit Servicing S.p.A (formerly Pirelli Credit Servicing S.p.A).

On 2 March 2011 the ratings of the Class A Notes were placed on review for possible downgrade following the publication of the methodology ""Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk" available on www.moodys.com. The main driver of the review action was the presence of an unrated servicer combined with uncertainty about the cash manager's access to the liquidity facility should the servicer default. Previously on 20 October 2010, Moody's had downgraded the Class B, Class C, Class D and Class X Notes due to slower than expected collections which had triggered interest deferrals on all those Notes.

Moody's was informed of certain transaction amendments, which had already taken effect following consent by all classes of Noteholders. The amendments focused on two areas: the liquidity facility and the sellers' representations and warranties.

Liquidity Facility Amendments

The liquidity facility agreement at closing was provided by Mediobanca Banca di Credito Finanziario S.p.A (unrated), and guaranteed by UBS AG London Branch (Aa3, P-1). The liquidity facility was available to meet Class A, B, C Note interest and any senior ranking claims of the Issuer. As of 20 January 2011, Credit Agricole Corporate & Investment Bank ("CAIB") (Aa3, P-1) has entered into a replacement contract on very similar commercial terms to the previous agreement. At the same time, the UBS guarantee was cancelled. The committed liquidity facility at closing was EUR 33 million; however the available amount to be drawn was limited in accordance with a calculation which used as a basis the current Class A, B and C Note balances. This amount had declined to below Euro 17.0 million at the time the replacement liquidity facility agreement was entered into. Under the terms of the replacement CAIB agreement, the commitment has dropped to EUR 18 million, although the calculation for availability has not changed. Hence the actual amount which would be available to Noteholders today and in future is the same as previously.

Warranty and Indemnity Removal

The second change was in relation to the removal of certain seller representations and warranties whereby BdS, as originator of the claims, was ultimately responsible to compensate the Issuer should certain of the eligibility criteria prove to be incorrect.

BdS has since merged into UniCredit S.p.A ("Unicredit"), who succeeded BdS's obligations to ICR4 and ICR7 and the Issuer. As of 31 December 2011, the Issuer, with the consent of all Noteholders, agreed to waive any further existing or future claim it has against Unicredit, the sellers and BdS. In return, Unicredit granted interest-free, limited recourse loans to the Issuer for an aggregate amount of EUR 27.8 million in respect of certain positions (being business plan credit lines or groups of business plan credit lines). It also repurchased certain positions for EUR 4.8 million and furthermore paid the Issuer a lump-sum indemnity amount of EUR 1.8 million. All these amounts were applied in the January 2011 interest payment date per the Issuer waterfall towards amortisation of the Class A Notes.

Each interest-free limited recourse loan essentially funds up front the expected business plan value in relation to certain positions. Any future receipts received by the Issuer in relation to those receivables will be used in the first instance to repay the limited recourse loan and to fund certain connected recovery expenses. Moody's does not have access to the dataset backing the servicer's business plan. As such it was not possible to perform further detailed analysis based on the information provided.

Rating Impact

Moody's views the removal of seller representations and warranties as being credit negative in general, since there could be still be undiscovered legal issues which may be made evident at point in time the receivable is enforced on. In particular, it is a credit strength to have direct or indirect recourse to originators/sellers when they are regulated institutions or highly rated entities.

The main credit mitigant for the senior Notes is that the transaction is currently in turbo amortisation mode meaning that senior Noteholders are benefiting from relatively quick build-up in credit enhancement via subordination. An estimated additional EUR 7 to 8 million is being channelled towards amortising the most senior Notes, while the current interest deferral is continuing. This accelerated increase in credit support of the senior Notes was not assumed in Moody's modelling at closing.

In addition, the current ratings of all classes of Notes are able to withstand moderate deviations between the servicer's expected receipts per claim, and the actual receipts per claim (or profitability per claim). Moody's base case modelling assumptions for the October 2010 rating review incorporated lower profitability per claim than the servicer's original business plan.

Nonetheless the ratings of the Class A Notes are being kept on review for possible downgrade, pending a full analysis of the operational risk of the transaction. This review is expected to be completed over the next coming months.

Performance Update

After adjustments for, inter alia, expenses and fees, The Class A Noteholders received EUR 56.7 million of principal redemption as at the 25 January 2011 distribution date, which compares with EUR 17.0 million at the 26 July 2010 distribution date. The majority of the increase can be attributed to the aforementioned one-off amounts received during the second half of 2010. Excluding the one-off amounts, the collection rate improved by 37% between H2 2010 and H1 2010. Total out of court settlements, auction proceeds and ad hoc receipts reached EUR 32.9 million compared with EUR 23.9 million in the previous half year. However, collection rates are still arriving more slowly than envisaged by the initial business plan, and as such are below target on cumulative aggregate.

Moody's notes that a significant amount is still awaiting disbursement by the courts of Italy: EUR 99.4 million is expected to be paid, however the timing of receipt of such amounts is not certain. Should a significant proportion of such amounts be released in the next six months, it is probable that the Class A Notes would be redeemed largely, or in full by the next interest payment date.

The current performance of the transaction currently conforms within acceptable ranges of Moody's base case expectations, after allowing for the one off settlement receipts.

RATING METHODOLOGY

The principal methodology used in rating Island Refinancing S.r.l. was "Update on Moody's Real Estate Analysis for CMBS Transaction in EMEA" published in June 2005. Moody's also used a bond liability cash flow model, which follows the general principles of modelling cashflows as set out in "Cash Flow Analysis in EMEA RMBS: Testing Structural Features with the MARCO Model (Moody's Analyser of Residential Cash Flows)", and which incorporates additional features to model the interest payment deferral and other structural features of the Notes.

The updated assessment is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's prior review is summarised in a Press Release dated 20 October 2010. The last Performance Overview for this transaction was published on 28 September 2010.

For updated monitoring information, please contact monitor.cmbs@moodys.com. To obtain a copy of Moody's New Issue Report for this transaction, please visit Moody's website at www.moodys.com or contact our Client Service Desk in London (+44-20-7772 5454).

London
Lisa Macedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's comments on transaction amendments relating to Italian non performing loan securitisation Island Refinancing S.r.l.
No Related Data.
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