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Rating Action:

Moody's downgrades 5 senior tranches of DSB Bank's Dutch ABS and RMBS transactions

11 Nov 2009

Approximately EUR 1.9 billion of debt securities affected

London, 11 November 2009 -- Moody's Investors Service has today downgraded the ratings of 5 senior classes of notes issued by Chapel 2003-I B.V., Chapel 2007-I B.V., Monastery 2004-I B.V. and Monastery 2006-I B.V. A detailed list of the affected tranches can be found at the end of this press release.

All the affected tranches were placed on review for possible downgrade on 13 October 2009 because of the implementation of emergency regulations in relation to DSB Bank N.V. ("DSB"; not rated by Moody's) by the Amsterdam court on 12 October 2009. On 19 October 2009, DSB was declared bankrupt by the Amsterdam court. DSB was the seller and is the servicer in the asset-backed securities (ABS) transactions Chapel 2003-I B.V. and Chapel 2007-I B.V. and the residential mortgage-backed securities (RMBS) transactions Monastery 2004-I B.V. and Monastery 2006-I B.V. Moody's notes that the uncertainty and operational risks in these transactions are the main drivers for today's rating actions. The affected senior classes remain on review for downgrade together with the mezzanine and junior classes placed on review for possible downgrade on 13 October 2009.

Servicing and Collections

Under a post bankruptcy agreement (the Post Bankruptcy Agreement) reached on 20 October 2009 between the issuers and DSB's bankruptcy trustee, DSB will remain the servicer of the securitised pools on a best effort basis. Moody's understands that borrowers have not yet been notified of the pledge or assignment of mortgage receivables to the issuers and have not yet been instructed to redirect payments directly to the issuer accounts. In the meantime, borrowers' collections will continue to be paid into the DSB accounts. Pursuant to the Post Bankruptcy Agreement, the bankruptcy trustee has agreed that all collections related to securitised receivables received in DSB's bank accounts will be transferred to the respective issuers (please see further under "Commingling" below).

All four transactions benefit from different back-up servicing arrangements, with Achmea Bank Holding N.V. for Chapel 2003-I B.V., Stater Nederland B.V. and Defam Select B.V. for Chapel 2007-I B.V., Quion Services B.V. and Quion Hypotheekbegeleiding B.V. for Monastery 2004-I B.V. and Stater Nederland B.V. for Monastery 2006-B.V., and none of these back-up arrangements are in a "hot" form, meaning that they are not able to immediately take over this role. Each back-up servicer requires a due diligence to be performed prior to confirming its intention to step up as servicer. At this stage, it is difficult to assess with a high degree of certainty whether one or all back-up servicers will eventually transition in the servicer's role and what will be the time frame. Moody's has been informed that the due diligence process has commenced; however Moody's expects that a full servicing transition could take a minimum of 6 months.

One area of concern relates to the reliance on the servicer -- DSB at present, until the servicing transition has been completed -- to provide timely information related to the securitised assets (loan balance, scheduled and actual collections, delinquencies, defaults, etc.) which are needed by the issuer administrators to produce investor reports but more importantly to make the relevant calculations for the swap and notes payment dates. Failure to receive such information in a timely manner from the servicer may expose the transaction to a delay in swap payments (and possible swap termination risks with associated costs) and/or a delay in required payments to noteholders.

In addition to the securitised receivables DSB continues to also service non-securitised assets. Therefore, Moody's considers DSB's servicing function to be of importance for the bankruptcy trustee and that the servicing will be maintained at least in the short-term.

Moody's has been informed by the issuer administrators that they are in frequent discussions with DSB and that DSB has told them all information is expected to be provided on time for the next interest payment date. The next payment dates are 17 November 2009 for Chapel 2003 and Monastery 2006. Given the uncertainty with regard to providing timely information and the timeframe of a full servicing transition, Moody's is concerned about the level of operational risk in all four transactions. The risk has increased by virtue of DSB's bankruptcy and in our opinion is not commensurate with a Aaa-rating.

Commingling

The Post Bankruptcy Agreement gives the issuers the status of post-petition creditors in respect of collections received by DSB during the life of the Post Bankruptcy Agreement. This means the issuers as post-petition creditors will have priority against and rank before pre-petition creditors and therefore mitigates commingling risk. Nonetheless, Moody's cannot entirely exclude the possibility that there will be a shortfall of funds available to the bankruptcy trustee to pay all post-petition creditors, in which case the issuers may not receive all the collections that are paid to DSB. In respect of any collections received by DSB before the Post Bankruptcy Agreement was executed or after it terminates, the issuers will be pre-petition creditors with a priority right ranking above general pre-petition unsecured creditors but behind post-petition creditors. Moody's will continue to monitor this risk.

Set-Off

Moody's notes there is a risk that asset losses will arise due to set-off of unpaid deposits owed by DSB against securitised loans. Moody's notes that the Dutch Deposit Guarantee Scheme ("DGS") may mitigate this risk but only if compensation payments will be paid gross (rather than net) any amounts owed by depositors in respect of securitised debt. Due to the lack of any relevant precedent, Moody's currently assumes that DGS payments will be made net of securitised debt, but will closely monitor the manner in which the DGS calculates payments for DSB customers. Moody's has received quarterly reports on the amount of borrowers' current accounts and/or savings deposits. The latest information dated from August 2009 indicated that the amounts were 0.27%, 0.37%, 0.13% and 0.06% of the current balance for Chapel 2003-I B.V., Chapel 2007-I B.V., Monastery 2004-I B.V. and Monastery 2006-I B.V. respectively. Moody's will consider these losses when measuring the risk on mezzanine and junior notes.

Moratorium

A moratorium has been declared by the bankruptcy court. This will initially last for 2 months, but may potentially be extended for another 2 months. Under Dutch law, a pledgee is restricted from using the proceeds of its security whilst a moratorium is continuing. Chapel 2007-I B.V. and Monastery 2006-I B.V. are not affected by this as there has been a "true sale" of the relevant receivables in favour of the issuers. However, in relation to Chapel 2003-I B.V. and Monastery 2004-I B.V. -- for which there is no "true sale" and the issuers rely instead on pledges over the receivables -- the moratorium may affect the issuers' ability to make timely payments to noteholders. The impact of the moratorium depends on the duration of the Post Bankruptcy Agreement. Any collections transferred by DSB to the issuers pursuant to the Post Bankruptcy Agreement will not be affected by the moratorium and may be applied to make payments under the notes as and when they fall due. On the other hand, any collections received by the issuers after the Post Bankruptcy Agreement is terminated (i.e. upon appointment of replacement servicers) may not be used to pay noteholders until the expiry of the moratorium period. In this respect, Moody's notes, the liquidity facilities and reserves for these transactions cannot be used to make principal payments on the notes. Moody's will consider this risk further in conjunction with the developments in the servicing transition.

Conclusion

In Moody's view, the Post Bankruptcy Agreement reduces the risk of imminent servicing disruption. Nonetheless, there are uncertainties relating to the continuation of servicing by DSB and the transition to back-up servicers. The operational risk may lead to non-timely payments under the notes and could result in a swap termination if a payment is missed. Moody's is of the view that this level of uncertainty and the resulting operational risk is no longer commensurate with a Aaa rating but rather with a Aa2 rating based on the current set of information. The Aa2 ratings do not fully factor in the additional risks such as swap termination and/or moratorium. For this reason the ratings remain on review. Moody's will continue the review of the four transactions and we expect to conclude the rating review in the next month, following the detailed assessment of possible additional losses associated with the risk of a swap termination as well as commingling, set-off and short term development in performance.

The classes of notes affected by today's rating actions are:

Issuer: Chapel 2003-I B.V.

- Class A, downgraded to Aa2 on review for possible downgrade, from Aaa; previously on 13 October 2009 placed on review for possible downgrade

Issuer: Chapel 2007 B.V.

- Class A1, downgraded to Aa2 on review for possible downgrade, from Aaa; previously on 13 October 2009 placed on review for possible downgrade

- Class A2, downgraded to Aa2 on review for possible downgrade, from Aaa; previously on 13 October 2009 placed on review for possible downgrade

Issuer: Monastery 2004-I B.V.

- Class A2, downgraded to Aa2 on review for possible downgrade, from Aaa; previously on 13 October 2009 placed on review for possible downgrade

Issuer: Monastery 2006-I B.V.

- Class A2, downgraded to Aa2 on review for possible downgrade, from Aaa; previously on 13 October 2009 placed on review for possible downgrade

The principal methodologies in rating and monitoring these transactions were "The Lognormal Method Applied to ABS Analysis," published September 2000, "Moody's Approach to Rating Dutch RMBS," published December 2004, "Moody's Updated MILAN Methodology for Rating Dutch RMBS," published in March 2009, "Moody's Updated Methodology for Set-Off in Dutch RMBS," published in September 2009, "Cash Flow Analysis in EMEA RMBS: Testing Structural Features with the MARCO Model," published in January 2006 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. 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.

Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Ivo Raschl
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades 5 senior tranches of DSB Bank's Dutch ABS and RMBS transactions
No Related Data.
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