London, 26 June 2013 -- Moody's Investors Service has today confirmed the ratings of two mezzanine
notes in two Italian residential mortgage-backed securities (RMBS)
transactions: Mecenate 2007 and Mecenate S.r.l.
Series 2011. At the same time, Moody's downgraded the rating
of one junior note in Mercurio Mortgage Finance S.r.l.
2003-2. Insufficiency of credit enhancement to address sovereign
risk have prompted today's downgrade.
Today's rating action concludes the review of Class D notes in Mercurio
Mortgage Finance S.r.l. 2003-2 placed on review
on 2 August 2012, following Moody's downgrade of Italian government
bond ratings to Baa2 from A3 on 13 July 2012. This rating action
concludes the review of Class C notes in Mecenate 2007, placed on
review on 13 Mar 2013, following Moody's review of collateral assumptions
for the entire Italian RMBS market. This rating action also concludes
the review of Class A3 notes in Mecenate S.r.l. Series
2011, placed on review on 13 Mar 2013, due to the insufficiency
of credit enhancement to address sovereign risk following the introduction
of additional factors in Moody's analysis to better measure the impact
of sovereign risk on structured finance transactions (see "Structured
Finance Transactions: Assessing the Impact of Sovereign Risk",
11 March 2013).
For a detailed list of affected ratings, see towards the end of
the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
to address sovereign risk, counterparty exposure and revision of
key collateral assumptions. Moody's confirmed the ratings of securities
whose credit enhancement and structural features provided enough protection
against sovereign and counterparty risk.
The determination of the applicable credit enhancement driving today's
rating actions reflects the introduction of additional factors in Moody's
analysis to better measure the impact of sovereign risk on structured
finance transactions (see "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk", 11 March 2013). This report
is Available on www.moodys.com and can be accessed via the
following link: (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF319988).
-- Additional Factors Better Reflect Increased Sovereign
Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the Local Currency Country Risk
Ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's intends
to better reflect increased sovereign risk in its quantitative analysis,
in particular for mezzanine and junior tranches.
The Italian country ceiling, and therefore the maximum rating that
Moody's will assign to a domestic Italian issuer including structured
finance transactions backed by Italian receivables, is A2.
Moody's Individual Loan Analysis Credit Enhancement (MILAN CE) represents
the required credit enhancement under the senior tranche for it to achieve
the country ceiling. By lowering the maximum achievable rating
for a given MILAN, the revised methodology alters the loss distribution
curve and implies an increased probability of high loss scenarios.
-- Revision of Key Collateral Assumptions
During its review Moody's also reassessed the MILAN CE assumptions of
the transactions underlying portfolios based on available loan-by-loan
information. As a result, Moody's maintained the current
MILAN CE assumptions in the three transactions: 8.5%
in Mecenate 2007, 16.5% in Mecenate S.r.l.
Series 2011 and 8.5% in Mercurio Mortgage Finance S.r.l.
Moody's maintained the current expected loss assumptions of 4.7%
in Mecenate S.r.l. Series 2011 and 1.52%
in Mercurio Mortgage Finance S.r.l., and increased
to 3.47% in Mecenate 2007.
-- Exposure to Counterparty Risk
Moody's takes into consideration the commingling and set-off
risks being sufficiently mitigated. Moody's has assessed the probability
and effect of a default by the servicers in these three deals on the ability
of the issuers to meet their obligations under the transactions.
These exposures have no impact in the current rating of the notes.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
As the euro area crisis continues, the ratings of 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 further negatively affect the ratings of the notes.
The methodologies used in these ratings were Moody's Approach to Rating
RMBS Using the MILAN Framework, published in May 2013, and
The Temporary Use of Cash in Structured Finance Transactions: Eligible
Investment and Bank Guidelines, published in March 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Moody's describes additional factors that may affect the ratings in "Approach
to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow
Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772),
published on 2 July 2012.
In reviewing these transactions, 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, Moody's calculates
the corresponding loss for each class of notes 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 (1) the probability of occurrence of each default scenario; and
(2) the loss derived from the cash flow model in each default scenario
for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
In the context of the rating review, the transactions have been
remodeled and some inputs have been adjusted to reflect the new approach
described above. In addition, for Mecenate 2007 Moody's corrected
the modeling of the artificial write-off mechanism and the amortization
mechanism of the notes. For Mecenate S.r.l.
Series 2011 Moody's corrected the modeling of the artificial write-off
mechanism, the amortization mechanism of the notes and the junior
notes margin.
THE LIST OF AFFECTED RATINGS
Issuer: Mecenate 2007
....EUR39.75M C Notes, Confirmed
at Baa2 (sf); previously on Mar 13, 2013 Baa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Mecenate S.r.l. - Series 2011
....EUR99.4M A3 Notes, Confirmed
at A2 (sf); previously on Mar 13, 2013 A2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Mercurio Mortgage Finance S.R.L. 2003-2
....EUR37.2M D Notes, Downgraded
to Baa3 (sf); previously on Aug 2, 2012 Baa2 (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
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 these transactions
in the past six months.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Maria Divid
Analyst
Structured Finance Group
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
Annabel Schaafsma
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Antonio Tena
AVP-Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 confirms two notes and downgrades one note in three Italian RMBS transactions
