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Rating Action:

Moody's confirms ratings of the Ukrainian RMBS and ABS USD denominated transactions

20 Jul 2010

Approximately USD 120M of debt securities affected.

London, 20 July 2010 -- Moody's Investors Service has confirmed ratings on the Notes of two Ukrainian RMBS and ABS transactions, Ukraine Mortgage Loan Finance No. 1 PLC and Ukraine Auto Loan Finance No.1 PLC, which are backed by USD-denominated collateral originated in Ukraine. Moody's originally put these Notes on review for downgrade on December 16, 2008 (and subsequently downgraded some of these notes and left them on review for further downgrade on July 10, and May 22, 2009) due to the increased uncertainty related to the rapid depreciation of the Hryvna against the US Dollar and the resulting low but increased risk, in Moody's opinion, of redenomination of USD mortgages and loan agreements into Hryvna.

In its analysis, Moody's has identified a linkage between the Foreign Currency Ceiling for Deposits in the country (B3 for Ukraine) and the probability of redenomination of the foreign currency denominated mortgage and auto loans into the local currency. The Foreign Currency Ceiling (FCC) for Deposits is typically used to reflect the risk that, in case of a currency crisis in the country, the government would limit withdrawal from the foreign currency deposits in order to restrict the movement of foreign currencies out of the country. The linkage between the FCC for Deposits and the risk of redenomination results from the fact that redenomination is also expected to occur during a period of currency crisis, when the depreciation of the local currency would put stress on the consumers, who have borrowed in foreign currencies, but typically earn salaries in the local currency. Such depreciation would increase the pressure on the government to alleviate the burden on the consumers by redenominating these loans at an exchange rate unfavourable for the transactions.

Therefore, in its analysis, Moody's concluded that the ratings of the foreign-currency backed Notes rated above the FCC for Deposits in the country would be susceptible to the additional linkage to the FCC for Deposits, which would reflect the additional uncertainty incorporated into these ratings as a result of the redenomination risk. Therefore, the downgrade of the FCC for Deposits in the country may lead to the downgrade of these Notes if they lack sufficient credit enhancement to cover the redenomination risk.

For the Notes rated at or above the FCC for Deposits, Moody's ensured that the ratings of the Notes can sustain a redenomination scenario where the losses on the pool are assumed to be approximately 50%. This would occur with a probability equal to the FCC for Deposits in the country (in addition to the losses generated by the pool and other risk factors of the transaction, which would occur assuming redenomination did not take place). The level of losses in case of redenomination was determined using severities observed in historical redenomination scenarios, such as the Argentinean currency crisis in 2001-2002. Please note that, in order for their ratings to pierce the FCC for Deposits, the Notes would need credit enhancement sufficient to fully cover for the potential losses related to redenomination. This is the case for the senior notes of these two transactions which benefit from significant credit enhancement.

Finally, as part of this analysis Moody's also reviewed the performance of the subject transactions and re-evaluated its assumptions in light of this performance. Therefore, the latest performance of the transactions listed below is incorporated into these rating actions. Moody's also took into account the latest assessments of the financial strength of the originator and servicer in the transactions. All ratings of the reviewed transactions have been confirmed. Below is the list of all notes affected by this rating action and the associated rating impact.

Issuer: Ukraine Mortgage Loan Finance No. 1 PLC

....Class A USD 134.1M Residential Mortgage Backed Floating Rate Notes due 2031, Confirmed at Ba1; previously on May 22, 2009 Downgraded to Ba1 and Remained On Review for Possible Downgrade

....Class B USD 36.9M Residential Mortgage Backed Floating Rate Notes due 2031, Confirmed at B3; previously on Jul 10, 2009 Downgraded to B3 and Remained On Review for Possible Downgrade

Issuer: Ukraine Auto Loan Finance No.1 PLC

....Class A USD 85.8M Floating Rate Notes due 2018, Confirmed at B1; previously on Jul 10, 2009 Downgraded to B1 and Remained On Review for Possible Downgrade

....Class B USD 18.7M Floating Rate Notes due 2018, Confirmed at Caa1; previously on Jul 10, 2009 Downgraded to Caa1 and Remained On Review for Possible Downgrade

The principal methodologies used in rating the notes issued by Ukraine Mortgage Loan Finance No. 1 Plc are "Moody's Approach to Rating RMBS in Emerging Securitisation Markets -- EMEA" dated 8 June 2007 and "Moody's Methodology for Rating RMBS in Europe, Middle East and Africa (EMEA)" dated 14 October 2008 using settings described in the methodology "Moody's MILAN Methodology for Rating Russian RMBS" dated 29 July 2008.

The principal methodologies used in rating the notes issued Ukraine Auto Loan Finance No.1 PLC are "The Lognormal Method Applied to ABS Analyst" dated 20 July 2000, "Moody's Approach to rating European Auto ABS: More rubber set to hit European Roads" dated 19 November 2002.

The Rating Methodology reports can be found at 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 this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. 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 ratings address the expected loss posed to investors by the legal final maturity of the notes. 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 will continue to monitor the performance of this RMBS transaction closely. For more information, please see Moody's research on www.moodys.com or contact Moody's Client Service Desk on (+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

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

Moody's confirms ratings of the Ukrainian RMBS and ABS USD denominated transactions
No Related Data.
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