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Rating Action:

Moody's downgrades 2 Portuguese Auto ABS deals, reviews 3 for operational risks

23 Dec 2009

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
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