Approximately EUR850 million of securitised notes affected
Frankfurt, December 23, 2009 -- Moody's Investors Services has downgraded the ratings of the notes
issued by LTR Finance No 6 plc (LTR 6) and LTR Warehouse Limited (LTR
Warehouse). In addition, Moody's has placed some of
the notes in these two transactions on review for further possible downgrade.
At the same time, it has also placed on review for possible downgrade
the ratings of the notes issued by LTR Finance No 5 plc (LTR 5).
A detailed list of today's rating actions can be found at the end
of this press release.
Today's downgrades were prompted by the weaker-than-expected
pool performance of the transactions, the ratings of which Moody's
originally placed on review on 22 July 2009. Moody's rating
review of the three LTR transactions relates to operational risks.
All three transactions represent the securitisation of portfolios of Portuguese
and Spanish auto-loans and lease contracts originated by Sofinloc
Instituição Financeira de Créditos, S.A.
("Sofinloc", not rated) in Portugal and Sofinloc Instituição
Financeira de Créditos, S.A. Spanish Branch
("Sofinloc Spanish Branch", not rated) in Spain,
which have retained the roles of Portuguese and Spanish servicers in these
transactions (in addition to other operational roles). Sofinloc
is a subsidiary of Banco Finantia S.A. ("Banco Finantia",
unrated). LTR 5, LTR 6 and LTR Warehouse closed in July 2004,
September 2006 and April 2007, respectively and their revolving
periods terminated in October 2007, November 2009 and March 2009.
WEAK PERFORMANCE
Today's rating downgrades for LTR 6 and LTR Warehouse resulted from
an increase in the rating agency's default assumptions, and
a decrease in its recovery expectation, in light of the deterioration
in the performance of the two affected transactions.
Since July 2009, cumulative write-offs have increased to
EUR42.7 million from EUR36.7 million in LTR 6 and to EUR17.6
million from EUR12.3 million in LTR Warehouse. In terms
of total assets securitised, the cumulative write-off ratio
in LTR 6 has increased to 4.5%, compared to 4.0%
and in LTR Warehouse to 2.8%, compared to 2.0%
in July 2009. As of the last reporting date in both transactions,
the reserve fund was fully funded at its target levels.
For LTR 6, Moody's has adjusted its cumulative mean default
rate assumption to 9.9% from its previously revised assumption
of 7.3%. For LTR Warehouse, Moody's has
adjusted its cumulative mean default rate to 10.4% from
6% of the original balance of the pool plus replenishments.
For both transactions, Moody's has reduced its initial coefficient
of variation assumption to 35% from 42%. Moody's
uses the coefficient of variation as a measure of the volatility of its
expected default distribution and defines it as the ratio between the
standard deviation and the mean. During its analysis Moody's
considered various types of information such as macro-economic
indicators, portfolio characteristics and performance data made
available by the originator Sofinloc. The rating agency also took
into account cumulative write-offs and a roll rate analysis was
conducted for the non-delinquent pool portion.
Moody's increased cumulative default rates are mostly driven by:
i) the worse-than expected performance of the receivables originated
in Spain; and ii) the potential for further deterioration within
the pool of receivables originated in Portugal. Since LTR 6 and
LTR Warehouse are backed by pools of similar asset types, the main
difference in performance is expected to stem from seasoning effects and
the different origination vintage distributions in the portfolios.
Moody's has also reduced its base case recovery rate assumption
to 20% from 35% initially, for both LTR 6 and LTR
Warehouse. Moody's believes that the reduced recovery rate
is more in line with actual observed recovery levels.
OPERATIONAL RISKS
Moody's has also placed all notes in the three outstanding LTR transactions
that were rated at or above the Ba1 level on review for possible downgrade,
as it assesses the impact of operational risks. The three transactions
are exposed to the ability of Sofinloc and Sofinloc Spanish Branch to
perform their various obligations related to servicing and cash management
(a role associated with payment calculation and instructions) in a timely
fashion. Moody's notes that there are no appointed back-up
servicers, or back-up arrangements for the cash management
responsibilities of Sofinloc or Sofinloc Spanish Branch. Transaction
documents include replacement events that are triggered when the capital
adequacy ratio of Banco Finantia ceases to be above 8% (according
to Banco Finantia, as of September 2009 this ratio was 13%).
However, Moody's believes these triggers imperfectly protect
the transactions from possible disruptions if Banco Finantia, Sofinloc
or Sofinloc Spanish Branch become insolvent. Moody's has
also considered the impact of a weakening outlook for the Spanish and
Portuguese economies and banking sectors. Moody's sector outlook
for Spanish consumer ABS and the Portuguese banking system is negative.
Moody's most recently discussed its rating considerations related
to operational risks in a Special Comment called "Operational Risks
in Securitisations to be Revisited", published in November
2009.
Moody's review for possible downgrade in relations with operational
risks will focus on: i) the losses that could arise from a disruption
of due to the failure of the servicers or cash managers to perform their
obligations in a timely manner; and ii) the obligations and ability
of various parties in the transaction to minimise such payment disruptions
in a distressed scenario. For instance, noteholders may be
exposed to the potential losses that could result, among other,
from swap termination costs, or from the trapping of collateral
collections in the bankruptcy estate of an insolvent entity. At
the same time, some parties in the transactions, which include
the Fund and transaction managers, have obligations towards noteholders
and may act as facilitators in a distressed scenario, but Moody's
will seek to clarify their ability to obtain the required information
to do so under such a scenario.
Moody's ratings address the expected loss posed to investors by
the legal final maturity date (July 2015 for LTR 5, November 2018
for LTR 6 and March 2018 for LTR Warehouse).
The principal methodologies used in rating these transactions were Moody's
"The Lognormal Method Applied to ABS Analysis," published in July
2000 and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS
Transaction," published in December 2008 and 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 this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website. Further
information on Moody's analysis of this transaction is available on www.moodys.com.
In addition, Moody's published a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
List of detailed rating actions
LTR Finance No. 5 plc:
- Class A Notes EUR27.5 million outstanding, Placed
on review for possible downgrade; previously on 1 July 2004 rated
Aaa.
- Class B Notes EUR15.6 million outstanding, Placed
on review for possible downgrade; previously on 1 July 2004 rated
Aa1.
- Class C Notes EUR16.6 million outstanding, Placed
on review for possible downgrade; previously on 1 July 2004 rated
A2.
- Class D Notes EUR7.5 million outstanding, Placed
on review for possible downgrade; previously on 1 July 2004 rated
Baa3.
LTR Finance No. 6 plc:
- Class A Notes EUR343.2 million outstanding, Downgraded
to Aa2 from Aaa and placed on review for further possible downgrade;
previously on 22 July 2009 placed under review for possible downgrade
- Class B Notes EUR35.0 million outstanding, Downgraded
to Baa2 from Aa1 and placed on review for further possible downgrade;
previously on 22 July 2009 placed on review for possible downgrade
- Class C Notes EUR30.6 million outstanding, Downgraded
to Ba3 from A2; previously on July 22 2009 A2 placed on review for
possible downgrade
- Class D Notes EUR13.2 million outstanding, Downgraded
to B3 from Baa2; previously on 22 July 2009, placed on review
for possible downgrade
LTR Warehouse Limited:
- Senior Facility EUR295.6 million outstanding, Downgraded
to Aa1 from Aaa and placed on review for further possible downgrade;
previously on July 22 2009 placed on review for possible downgrade
- Mezzanine Facility EUR10.4 million outstanding,
Downgraded to A1 from Aa2 and placed on review for further possible downgrade;
previously on July 22 2009 placed on review for possible downgrade
- Class B Notes EUR54.4 million outstanding, Downgraded
to Ba1 from Baa3 and placed on review for further possible downgrade;
previously on July 22 2009 placed on review for possible downgrade
Frankfurt
Sebastian Hoepfner
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
Paris
Annick Poulain
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Ariel Weil
Vice President - Senior Analyst
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades 2 Portuguese Auto ABS deals, reviews 3 for operational risks
