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Announcement:

Moody's confirms Aa2(sf) rating of Medioleasing Finance class A notes, Italian lease ABS

Global Credit Research - 22 Mar 2012

London, 22 March 2012 -- Moody's Investors Service has today confirmed the Aa2(sf) rating of the class A senior notes in Medioleasing Finance S.r.l.:

....EUR300M A Notes, Confirmed at Aa2 (sf); previously on Feb 21, 2012 Downgraded to Aa2 (sf) and Remained On Review for Possible Downgrade

Today's announcement concludes the rating review of the transaction initiated on 4 July 2011. This rating review was initially triggered by (i) the worse-than-expected performance of the collateral and deviation from Moody's initial expectations; (ii) credit enhancement levels below those required to absorb higher-than-initially-expected losses on the portfolio of assets; and (iii) a long revolving period, which can last until April 2017.

The rating of the class B notes issued by Medioleasing Finance remains Baa1(sf) on review for downgrade as their rating is linked to the rating of their guarantor, Banca delle Marche (Baa1 on review for downgrade). This review will be concluded once the rating review of Banca delle Marche is concluded.

RATINGS RATIONALE

Today's confirmation reflects transaction amendments that increase credit enhancement under the senior notes and accelerate the amortisation of the notes, offsetting the effects of worse-than-expected collateral performance. Following the amendments executed on 2 March 2012: (i) the reserve fund is to be increased to €60 million from €6.1 million by the next transaction payment date in April 2012; (ii) the revolving period was changed to allow for partial amortisation of the notes starting in April 2012, therefore allowing for some deleveraging of the senior notes; and (iii) a back-up servicer (BUS) facilitator has been appointed to mitigate operational risk (see details below).

On 21 February 2012, the class A notes were downgraded from Aaa(sf) to Aa2(sf), remaining on review for downgrade. This downgrade followed the lowering of the highest achievable structured finance ratings in Italy which was prompted by the downgrade of the sovereign rating of Italy on 13 February 2012 (for more details, please refer to press release "Moody's downgrades senior ABS, RMBS and CLO notes exposed to Italy and Spain" on www.moodys.com).

--RESERVE FUND INCREASED

Since last October, cash collections have been partly set aside to increase the reserve fund, which was initially set at €6.1 million. However, the target reserve fund amount is now €60 million (20% of class A notes balance), which should be reached on the next payment date in April. The reserve fund will start amortising next April, together with the class A notes, in order to remain at a level equal to 20% of the class A notes' balance. The amortisation amounts of the reserve fund will be used to repay the senior notes. Following this reserve fund increase, the credit enhancement below the class A notes is approximately equal to 40.8%.

--NOTES TO START AMORTISING IN APRIL 2012

Transaction amendments also brought forward the amortisation of the class A notes to April 2012 instead of April 2017. Starting on the next payment date, 50% of the collections received from the pool of assets will be used to repay the class A notes and, until April 2017, the other 50% will continue to be used to purchase new assets. This mechanism allows for an earlier deleveraging of the senior notes than was originally planned.

--BACK-UP SERVICER FACILITATOR APPOINTED

Banca delle Marche, the parent of Medioleasing was downgraded from A3 to Baa1 in October 2011 and the Baa1 rating has been on review for downgrade since 16 February 2012.

To mitigate operational risk linked to a potential servicing disruption, Securitisation Services S.p.A. (not rated) is now acting as back-up servicer (BUS) facilitator in this transaction, in which Medioleasing acts as servicer. If the appointment of Medioleasing is terminated, Securitisation Services S.p.A., who is also the representative of the noteholders, will use its best efforts to find a substitute servicer. This is in addition to the back-up servicer trigger at loss of Baa2 of the parent of the servicer, which was already in place in the transaction.

The BUS facilitator is an independent company, specialised in managing and monitoring securitisation transactions. The BUS identified by Securitisation Services S.p.A. needs to have at least three-years experience as servicer of lease receivables, as well as IT systems compatible with those of the current servicer.

-- TRANSACTION DETAILS

Medioleasing Finance closed in May 2008. The portfolio comprises three pools of Italian financial-lease contracts backed by auto, equipment and real-estate assets. The securitised pool is mainly exposed to real-estate contracts. The split between the three sub-pools (as of the last reporting date in January 2012) was 22% for equipment, 2% for auto and 76% for real estate. During the revolving period real estate assets should not exceed 85% of the total pool balance.

-- REVISED PERFORMANCE ASSUMPTIONS

Asset performance has been worse than Moody's initial expectations. As of October 2011, total loans in arrears amounted to approximately 4.6% of the current portfolio balance. As of this same date, cumulative defaults reached 8.8% of the total securitised pool since closing. This compares with the expected cumulative defaults of 7% over the life of the transaction assumed at the closing date in 2008.

To reflect this deterioration, Moody's has reassessed its lifetime default expectation for Medioleasing Finance's collateral pool. This factored in the worse-than-expected collateral performance to date and any likely further performance deterioration of the pool in the current down cycle.

Moody's assumes the default probability of SME debtors to be in the low-Ba/high-B range and estimates the remaining weighted-average life of the current portfolio to be approximately five years. Consequently, these revised assumptions have translated into a rise in the cumulative mean default assumption for the current portfolio, equal to 18% of the current portfolio balance. As the transaction is still revolving, this increased default assumption implies a revised cumulative mean default for the entire transaction (since closing) equal to 18% of the original portfolio balance. This default assumption corresponds to an equivalent rating of B1/B2 over the portfolio weighted-average life.

Given the pool's relatively low granularity with an effective number of 381, Moody's used a Monte Carlo simulation to derive the gross default distribution. As a result of the simulation, the coefficient of the variation of the default distribution has decreased to 42%, compared with 62.5% at the closing date.

Moody's assumes an average stochastic recovery rate of 45%. The rating agency has also considered the potential effect of the originator insolvency on the recoveries in the transaction. If the originator became insolvent, Moody's would expect recoveries on defaulted lease contracts to be approximately 15%.

--SENSITIVITY ANALYSIS

Moody's analysed various cumulative default rates to test the robustness of the notes rating. For instance, an increase of the cumulative default rate on the current balance to 19% from 18% (base case) or an increase of the coefficient of variation to 52% from 42% (base case) would not result in a migration of the quantitative/model-indicated rating outcome for class A notes. Also, a lower recovery rate of 40% instead of 45% (base case) does not affect the quantitative/model-indicated rating outcome for class A.

As such, Moody's analysis encompasses the assessment of stressed scenarios.

The revised assumptions remain subject to uncertainties such as the future general economic activity, and the evolution of the performance of the transaction. If realised recovery rates were to be substantially lower or default rates substantially higher than assumed, the rating would be negatively affected .

The principal methodology used in this rating was Moody's Approach to Rating Multi-Pool Financial Lease-Backed Transactions in Italy published in June 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

In reviewing this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. 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 derived from the cash flow model in each default scenario for each tranche.

As the Euro area crisis continues, the rating of the structured finance notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. For more information please refer to the Rating Implementation Guidance published on 13 February 2012 "How Sovereign Credit Quality May Affect Other Ratings". Please also refer to the recent rating actions on banks published on 15 February 2012, (please see "Moody's Reviews Ratings for European Banks" and "Moody's Reviews Ratings for Banks and Securities Firms with Global Capital Markets Operations" for more information).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, confidential and proprietary MIS information and public information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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.

Anne-Sophie Spirito
Asst Vice President - Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms Aa2(sf) rating of Medioleasing Finance class A notes, Italian lease ABS
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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