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07 May 2010
Approximately EUR686 million of debt instruments affected
Paris, May 07, 2010 -- Moody's Investors Services has today downgraded to Aa3 the ratings
of the most senior class of notes in LTR Finance No 6 plc (LTR 6) and
LTR Warehouse Limited (LTR Warehouse). Moody's has also downgraded
to Aa3 the ratings of the Class B in the LTR Finance No 5 plc (LTR5) but
confirmed the Aaa-ratings of the most senior, Class A notes
which are expected to be fully redeemed very shortly. In addition,
Moody's has confirmed the ratings of all the mezzanine notes that
were on review for possible downgrade in each of the three transactions.
A detailed list of today's rating actions can be found at the end
of this press release. Today's rating actions conclude the
rating review related to operational risk that was initiated on 23 December
The downgrades reflect Moody's assessment that the credit quality
of the servicers (not rated by Moody's) and the structural features
of the transactions make them vulnerable to possible payment disruptions
and losses that could result from a failure of the servicers to perform
their obligations in a timely manner under a distressed scenario.
The confirmation of the EUR5.9 million Class A ratings in LTR 5
results from their high credit enhancement (including a EUR6.4
million cash reserve) and the expectation that their residual outstanding
amount will be repaid by the next quarterly payment date.
However, the limited magnitude of the downgrades reflects the likelihood
that some of the transaction agents, in particular the transaction
manager (HSBC, rated Aa2, Prime-1) and the fund managers,
as well as the significant cash reserves held at Prime-1 rated
banks, would mitigate payment disruptions in a distressed scenario.
All three affected transactions represent the securitisation of Portuguese
and Spanish auto-loans and lease contracts originated by Sofinloc
Instituição Financeira de Créditos, S.A.
(Sofinloc) in Portugal and Sofinloc Instituição Financeira
de Créditos, S.A. Spanish Branch (Sofinloc
Spanish Branch) in Spain, which have retained the roles of Portuguese
and Spanish servicers (together, the servicers) in these transactions.
Sofinloc is a subsidiary of Banco Finantia S.A. (Banco Finantia).
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.
The three transactions are exposed to the ability of the servicers to
perform their various obligations related to servicing and cash management
(a role associated with payment calculations and instructions) in a timely
fashion. Moody's notes that there are no appointed back-up
servicers. Transaction documents include replacement events that
are triggered when the capital adequacy ratio of Banco Finantia ceases
to be above 8% (in December 2009 this ratio was 14.1%)
or if their regulators intervene or investigate in the affairs of the
servicers. However, Moody's believes these triggers
imperfectly protect the transactions from possible disruptions in the
event of a sudden deterioration in the credit quality of Banco Finantia,
Sofinloc or Sofinloc Spanish Branch and if a successor servicer could
not be rapidly found.
Moody's analysis considered the statutory role of the Spanish and
Portuguese fund managers to act as back--up servicer facilitators,
but noted that both are linked to Banco Finantia. Moody's
also notes that the collateral type and servicing platforms are relatively
standard, servicing fees consistent with market practices,
but that servicing transfers in Portuguese transactions are less common
than in other securitisation markets such as the UK or the Netherlands.
Moody's analysis also considered the risk of commingling of cash
from the collection accounts held under the name of an insolvent servicer.
While this risk cannot be ruled out, Moody's has considered
the daily frequency of collection sweeps to the transaction accounts and
the ability of the fund managers to redirect payments as mitigating factors.
In the three affected transactions, most of the cash management
activities are performed by the transaction manager, a highly rated
third party. However, if the servicers were unable to provide
information related to collections in a timely fashion, it is unlikely
that the transaction manager would be in a position to order timely payments
However, Moody's considers the ability of the transaction
manager to use cash from the significant, fully-funded cash
reserve accounts (which include liquidity ledgers corresponding to nine
months of interest) significantly mitigates the risk of non-payment
of interest on the notes under a servicer disruption scenario.
While payment delays resulting from consensus seeking could lead to technical
defaults and a swap termination exposing the transactions to unhedged
interest rate risk and possible termination payments, party incentives
are aligned to minimise the likelihood of payment defaults.
Moody's has today published an "Operational Risk Request for
Comment", which includes proposed criteria for operational
risks, and previously discussed its rating considerations related
to operational risks in the Special Comment "Operational Risks in
Securitisations to be Revisited", published in November 2009.
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
Issuer: LTR Finance No. 5 plc
- Class B: Downgraded to Aa3; previously on 23 December
2009 Aa1 placed under review for possible downgrade
- Class A: Confirmed at Aaa; previously on 23 December
2009 Aaa placed under review for possible downgrade
- Class C: Confirmed at A2; previously on 23 December
2009 A2 placed under review for possible downgrade
- Class D: Confirmed at Baa3; previously on 23 December
2009 Baa3 placed under review for possible downgrade
Issuer: LTR Finance No. 6 plc
- Class A: Downgraded to Aa3; previously on 23 December
2009 Downgraded to Aa2 and Remained On Review for Possible Downgrade
- Class B: Confirmed at Baa2; previously on 23 December
2009 Downgraded to Baa2 and remained on review for possible downgrade
Issuer: LTR Warehouse Senior Facility: Downgraded to Aa3;
previously on 23 December 2009 Downgraded to Aa1 and remained on review
for possible downgrade
- Mezzanine Facility: Confirmed at A1; previously on
23 December 2009 Downgraded to A1 and remained on review for possible
- Class B: Confirmed at Ba1; previously on 23 December
2009 Downgraded to Ba1 and remained on review for possible downgrade
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades 3 Portuguese Auto ABS deals due to operational risk
Vice President - Senior Analyst
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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