Approximately EUR19.7 billion of debt securities downgraded
Paris, March 31, 2010 -- Moody's Investors Service today downgraded 24 structured finance
transactions backed by pools of Greek assets. The downgrades were
prompted by increased credit risk of the Greek sovereign and affect EUR
6.906 billion of tranches from 11 RMBS deals, EUR 10.710
billion of tranches from 11 ABS deals and EUR 2.082 billion of
tranches from two CLOs.
- In RMBS, Moody's downgraded Aaa senior classes two
or three notches and downgraded mezzanine classes rated above the Greek
government's A2 rating to A2.
- In ABS, Moody's downgraded seven deals backed by
loans or leases to small and medium enterprises and four backed by consumer
assets. Aaa classes were downgraded one to three notches and Aa2
and A1 classes from two of these 11 transactions were downgraded one to
two notches.
- In CLOs, Moody's downgraded two Aaa classes to Aa1.
These downgrades incorporate Moody's view on the impact of increasing
country risk in Greece. The ratings were reviewed with consideration
of an extreme worst-case economic scenario developed from macro-economic
factors that can impact structured finance transactions. As well,
the availability of liquidity support and the impact of operational risk
were analysed. Today's actions are primarily driven by the
worst-case economic scenario.
Rating actions relating to two covered bond transactions are described
in a separate press release entitled "Moody's downgrades Greek mortgage
covered bonds issued by Alpha and NBG; Eurobank EFG's mortgage
covered bonds confirmed at Aa2".
Recent Rating Activity
These downgrades follow the press release issued on 19 February 2010,
entitled "Moody's reviews for downgrade Aaa ratings of most
Greek structured finance and covered bond transactions," where
Moody's explained it was placing on review the Aaa-rated
securities backed by the above mentioned transactions in the context of
the evolving sovereign situation and the current economic and financial
environment. This included consideration of the existing credit
enhancement levels in relation to a potential increase in the default
probability of the underlying assets, in the event the local economy
endures further stress, as well as concerns around refinancing risk
and the exposure of some of these transactions to local banks.
Today's rating actions conclude this review for RMBS, ABS
and CLO transactions and follow the announcement of Moody's requirement
for assigning Aaa ratings on Greek structured finance and covered bond
transactions released on 29 March 2010 ("Moody's: Greek
structured finance deals can achieve Aaa ratings subject to certain conditions").
Moody's notes that some of the structured finance transactions affected
today rely on the performance of National Bank of Greece, EFG Eurobank
Ergasias SA, Alpha Bank AE and Piraeus Bank, or their subsidiaries,
as servicers, swap counterparties and/or collection account banks,
among other roles. In its normal course of monitoring these structured
finance ratings, Moody's will closely follow the steps taken
by the banks within each transaction to remediate the impact of the recent
Greek bank rating actions, and will take appropriate rating action
if required. For a description of these bank rating actions please
refer to the press release dated 31 March 2010 "Moody's downgrades
five Greek banks due to weakened financial strength; outlook remains
negative."
Review Parameters
In order to determine the worst-case economic scenario, Moody's
considered a few extreme scenarios, such as the crisis in Argentina
in 2000, which combined a systemic banking crisis together with
a sovereign debt crisis and resulted in inflation exceeding 40 percent
and a real GDP drop of more than 10 percent. Moody's focused
on macro-economic factors that can impact structured finance transactions,
particularly those related to the sovereign. In addition to factors
typically associated with economic and financial volatility such as business
failure rate, unemployment rate, interest rate and market
price movements, the rating agency also considered factors related
or highly correlated to the strength of public finances and to the local
banking system. Long-term fiscal austerity, availability
of credit in the event of a liquidity crisis and even civil unrest,
amongst others, would impact the performance of securitised assets.
Moody's also considered Greece's membership of the European
monetary union, which removes the risk, generally one of the
most perilous for investors, of a devastating disruption to the
national payment system. As previously explained, Moody's
believes the risk of a disorderly exit of Greece from the Eurozone is
negligible.
In its analysis, Moody's viewed the likelihood of this economic
worst-case scenario as equivalent to an A1 default probability.
Such probability is equal to Moody's A1 systemic support anchor
for the banking sector in Greece. This systemic support anchor
is positioned one notch above the national government's local currency
debt rating, which is a proxy for a scenario in which the government
would be compelled to provide support to the banking sector.
Moody's weighted the consequence of the worst-case scenario
on the notes expected loss by the likelihood of such scenario.
As a consequence, the impact is likely to be limited on tranches
currently rated below A1. However, Moody's notes that
any further rating action on the Greek government debt rating or banking
systemic support anchor may lead to further rating actions on Moody's
rated Greek structured finance transactions.
Moody's has concluded that a significant stress on these macro-economic
factors, including the government-related ones, would
result in severe performance deterioration of securitised assets,
but that the deterioration would vary depending on the type of assets
in the pool. For instance, a loan to a small enterprise which
is relying on uncommitted revolving lines from local banks would be more
directly exposed to a liquidity crisis than a fully amortising mortgage
loan. For further elements on each specific asset class,
please refer below.
RMBS Transactions
Moody's reviewed 11 RMBS transactions assuming worst case scenario
losses in the range of 30 to 40 percent. All Aaa-rated classes
were impacted in the stress test analysis and they have been downgraded
by either two or three notches. The analysis has also affected
three mezzanine classes rated above the government rating which have been
all downgraded to A2. The appropriate stress scenario was determined
considering the portfolio characteristics and in particular the weighted
average loan-to-value ('LTV') at closing as
well as the seasoning of the collateral. No consideration was given
to the performance of the collateral in the determination of these stress
scenarios. However the rating impact varies according to the available
credit enhancement for each class which is ultimately linked to the performance
of the underlying collateral.
The portfolio of Greek RMBS rated by Moody's comprises transactions
closed between 2004 and 2009. In this portfolio the weighted average
LTV at closing was on average equal to approximately 65 percent with few
exceptions above 70 percent. There was only one revolving transaction,
Estia Mortgage Finance II, for which the substitution period has
already ended. In general, all the transactions are still
performing within expectations with 60+ delinquencies on average
at approximately 1.5 percent of the current pool balance and cumulative
defaults below one percent of the original pool balance.
ABS Transactions
Moody's reviewed 14 out of 17 ABS transactions with Moody's
ratings outstanding. Among the remaining three ABS deals,
two are directly linked to the rating of the Greek government (Ariadne
and Titlos) while Karta 2005-1 is a credit card transaction in
the end of its accumulation phase which is largely cash collateralized
(see the press release dated 19 February 2010 for more details).
The 14 transactions can be split into two sub-groups; 10 deals
backed by loans or leases to small and medium enterprises ('SME')
and four transactions backed by consumer assets (including one credit
card deal). During the review process, Moody's considered
extreme loss scenarios on the securitized pools corresponding to extreme
macro-economic conditions as described above. For the SME
loans and leases portfolios, Moody's considered loss scenarios
in the 55 to 60 percent range, whereas the consumer portfolios were
stressed up to a 50 percent loss. In addition, Moody's
conducted a sensitivity analysis on the extreme loss assumption.
Among the 14 transactions, 11 are impacted by this worst-case
scenario analysis, leading to one to three notch downgrades on the
initially Aaa-rated notes and one to two notch downgrade on two
senior notes from two transactions initially rated A1 and Aa2 .
The three transactions that are not affected by this rating review are
Anaptyxi 2006-1, Anaptyxi SME II 2009- 1 and Andromeda
Leasing I. The analysis on Anaptyxi 2006-1 (reviewed in
June 2009) and Anaptyxi SME II 2009- 1 (closed in February 2009)
already partly considered an extreme scenario of a stressed sovereign
situation and a potential systemic banking crisis. However,
given the current A2 and A1 rating on the respective senior-most
tranches of these two transactions, the incremental risk assessed
with a likelihood of A1 was negligible.
The impact of this analysis on Andromeda Leasing I was also negligible
given the higher credit enhancement levels based on a conservative recovery
assumption for the Aa2 rated class of notes.
CLO Transactions
Moody's reviewed two replenishable collateralised loan obligations
with underlying portfolios consisting of bond and term loans advanced
to SMEs located in Greece by Piraeus Bank and Alpha Bank AE. Moody's
considered loss scenarios in the 50 to 60 percent range. Again,
these loss assumptions correspond to extreme macro economic conditions
as described above. Moody's also conducted a sensitivity
analysis on both the extreme loss assumption and the likelihood of occurrence
of such an event. Furthermore, the industry distribution
and concentration profiles of the securitised pools were taken into account.
The rated tranches of these transactions have credit enhancements in the
50 to 55 percent range.
The impact of this review on the two transactions is a one notch rating
downgrade of the initially Aaa-rated tranches.
In addition, Moody's analyzed Eterika plc, a Greek-domiciled
CLO transaction with a similar underlying portfolio using the above loss
scenario assumptions. The impact of the incremental risk of a sovereign
and systemic banking crisis occurring with a likelihood of A1 was not
material for the rated tranche, given its current rating of A1.
List of Rating Actions
RMBS
Issuer: Estia Mortgage Finance II PLC
....EUR1137.5M A Notes, Downgraded
to Aa3; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: Grifonas Finance No. 1 Plc
....EUR897.7M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
....EUR23.8M B Certificate, Downgraded
to A2; previously on Aug 30, 2006 Definitive Rating Assigned
A1
Issuer: KATOIKIA I MORTGAGE FINANCE PLC
....EUR886.6M A Notes, Downgraded
to Aa3; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: KION Mortgage Finance No. 2 Plc
....EUR522.405M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: KION Mortgage Finance Plc
....EUR553.8M A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: Themeleion Mortgage Finance PLC
....EUR693.5M A Notes, Downgraded
to Aa2; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: Themeleion II Mortgage Finance Plc
....EUR690M A Certificate, Downgraded
to Aa2; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: Themeleion III Mortgage Finance Plc S.r.I.
....EUR900M A Certificate, Downgraded
to Aa2; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
....EUR40M M Certificate, Downgraded
to A2; previously on Jun 26, 2006 Definitive Rating Assigned
Aa2
Issuer: Themeleion IV Mortgage Finance Plc
....EUR1352.9M A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
....EUR155.5M B Certificate,
Downgraded to A2; previously on Jun 21, 2007 Definitive Rating
Assigned Aa3
Issuer: Themeleion V Mortgage Finance Plc
....EUR957.8M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: Themeleion VI Mortgage Finance Plc
....EUR1560.9M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
ABS
Issuer: Anaptyxi SME I
....EUR1750M A Certificate, Downgraded
to Aa3; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: Axia Finance PLC
....EUR1408.75M A Certificate,
Downgraded to A2; previously on Nov 21, 2008 Assigned A1
Issuer: Axia III Finance Plc
....EUR1670.1M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: DANEION 2007-1 PLC
....EUR1587.5M Class A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: Gaia Lease Plc
....EUR272.6M A Notes, Downgraded
to Aa1; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: IRIDA PLC
....EUR261.1M A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: KATANALOTIKA PLC
....EUR1109.6M A Certificate,
Downgraded to A1; previously on Dec 9, 2008 Assigned Aa2
Issuer: Misthosis Funding Plc
....EUR363.9M A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: PRAXIS I FINANCE PLC
....EUR493M A Certificate, Downgraded
to Aa3; previously on Feb 19, 2010 Aaa Placed Under Review
for Possible Downgrade
Issuer: Praxis II Finance Plc
....EUR379.2M A Certificate,
Downgraded to Aa2; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Issuer: Synergatis Plc
....EUR1414.5M A Certificate,
Downgraded to Aa3; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
CLO
Issuer: Axia II Finance PLC
....EUR459M Class A Asset Backed Floating
Rate Notes due 2031 Notes, Downgraded to Aa1; previously on
Feb 19, 2010 Aaa Placed Under Review for Possible Downgrade
Issuer: EPIHIRO PLC (Athena Project)
....EUR1623M Euro 1,623,000,000
Class A Asset Backed Floating Rate Notes due January 2035 Notes,
Downgraded to Aa1; previously on Feb 19, 2010 Aaa Placed Under
Review for Possible Downgrade
Moody's will continue to monitor the transactions. The principal
methodologies used in rating and monitoring these transactions are:
- Moody's Methodology for Rating Greek RMBS (October 2009)
- Cash Flow Analysis in EMEA RMBS: Testing Structural Features
with the MARCO Model (Moody's Analyser of Residential Cash Flows) (January
2006)
- Moody's Approach to Rating Granular SME Transactions in Europe,
Middle East and Africa (June 2007)
- 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 (March 2009)
- The Lognormal Method Applied to ABS Analysis, (July 2000)
- Revising Default/Loss Assumptions Over the Life of an ABS/RMBS
Transaction (December 2008)
- Moody's Approach to Rating Credit Card Receivables-Backed
Securities, (April 2007)
- Moody's Approach to Rating CDOs of SME in Europe, (February
2007)
- Moody's Approach to Rating Corporate Collateralised Synthetic
Obligations, (September 2009)
- Moody's Approach to Rating Corporate Collateralised Synthetic
Obligations, (August 2009)
All principal methodologies are available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these transactions can also be found
in this Rating Methodologies sub-directory. In addition,
Moody's publishes a weekly summary of structured finance credit news,
ratings and methodologies in "Structured Finance Quick Check" at www.moodys.com/SFQuickCheck.
For further information, please visit our website directly or contact
Moody's Client Service Desk (+44 20) 7772 5454.
Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Florence Tadjeddine
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's concludes review of sovereign impact on Greek structured finance transactions
