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Global Credit Research - 22 Jul 2010
EUR855.7 million of rated securities affected
Paris, July 22, 2010 -- Moody's Investors Service has today downgraded the ratings of the following
classes of notes issued by Compagnia Finanziaria 1 S.r.l.
....EUR713.06M A Notes, Downgraded
to A3; previously on Feb 17, 2010 Aaa Placed Under Review for
....EUR95.05M B Certificate,
Downgraded to Ba1; previously on Feb 17, 2010 A1 Placed Under
Review for Possible Downgrade
....EUR47.54M C Certificate,
Downgraded to Ba3; previously on Feb 17, 2010 Baa2 Placed Under
Review for Possible Downgrade
Today's rating actions conclude the review process initiated on 17 February
2010, which was prompted by worse-than-expected performance.
Moody's says that the magnitude of the downgrade reflects both the
operational risk, in particular the timely payment of interest,
and the current credit enhancement levels, which, combined
with revised assumptions, lead to a higher expected loss on the
In April 2010, the level of cumulative defaults equalled 5.1%
of the total securitised pool compared with 2.1% one year
ago. Despite the high level of defaults, performance have
started to improve over the past two periods. Indeed, in
October 2009, the level of 90+ delinquencies over the current
balance was 4.4%, compared with the current level
of 3.9%. However, the transaction is currently
under-collateralised, with a EUR4.7 million deficit
between the notes balance and pool balance in April. The liquidity
reserve is at zero as it has been used to cover defaults due to insufficient
As of April 2010, the pool factor was 68.5%.
In its analysis, Moody's considered various information such as
macro-economic indicators, portfolio characteristics and
performance data made available from the trustee. Moody's took
into account the key macro-economic drivers behind collateral deterioration,
in particular, unemployment. During Q1 2010, the unemployment
rate in Italy stood at 8.8% compared with 6% in 2007.
Moody's also considered the geographic concentration of the borrowers,
the vintages of the year the loans were originated, the loan purpose
and the origination channels. In particular, the securitised
portfolio has a notable concentration of borrowers living in the South
Moody's sector outlook for Italian consumer loan ABS is negative ("EMEA
ABS, CMBS & RMBS Asset Performance Outlooks ", published
in July 2010).
Moody's Assumptions on Cumulative Default and Volatility
Moody's took the current amount of defaults into account and conducted
a roll rate analysis for the delinquent pool portion. Moody's concluded
on a cumulative default rate of 11% of the outstanding portfolio
amount. This translates into a cumulative default number of 9.25%
of total securitised pool, compared with the initial assumption
of 4.85%. Moody's maintained the volatility at 50%
(the volatility is defined as the standard deviation divided by the cumulative
Moody's Assumptions on Recovery and Prepayment Rate
The recovery rate was decreased to 25% from 30% taking into
account the decreasing trend noticed by Moody's on historical data recoveries.
In addition, Moody's tested various sensitivity scenarios on cumulative
default, recovery rate and volatility. Moody's also ran sensitivities
on prepayment rate assumption in its cash flow model. Due to the
actual CPR performance reported for this transaction, the CPR was
decreased to 10% from 12%. Moody's concluded
that the current rating could support up to 13% mean default on
the outstanding portfolio amount or 16% recovery rate.
Additionally, Moody's considered the operational risk in the
transaction, as discussed most recently in "Global Structured
Finance Operational Risk Request for Comment" (published 6 May 2010).
The downgrades thus reflect Moody's assessment that the credit quality
of the servicers (not rated by Moody's) and the structural features
of the transaction make it 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.
Moody's notes that the transaction has a back-up servicer,
UGC S.p.a (not rated but fully owned by Unicredit Spa -
rated Aa3). The back-up servicing agreement does not prescribe
a plan that the back-up servicer should follow before being activated
as substitute servicer. Nevertheless, the back-up
servicer has told Moody's that a feasibility study was conducted
over the past year.
Moreover, the cash manager, BNP Paribas Securities Services,
may not be able to make payments if it does not receive the servicer report,
even though there is cash in the structure. In this case,
among others, the structure may experience a termination event at
the level of swap entailing a significant cost for the issuer.
Finally, the cash reserve, targeted to be EUR10.5 million,
has been fully depleted.
The A3 rating of the senior notes reflects the combination of poor performance
and credit enhancement levels and weaknesses on the operational risk side.
The rating of the junior notes also takes into account the potential additional
costs following missed payments of interest and swap.
Moody's will continue to closely monitor this transaction and in
particular the situation of both servicers, which are part of Gruppo
Delta S.p.A. Gruppo Delta S.p.A.
was placed under special administration by the Bank of Italy in May 2009.
Compagnia Finanziaria 1 S.r.l. - 2007 closed
in January 2008. The originators were Carifin Italia S.p.A.
(not rated) and Plusvalore S.p.A. (not rated),
for which the parent company is Gruppo Delta (not rated) . The
transaction is backed by a portfolio of loans to individuals including
20% of cession del quinto, 11% delegacion de pagamento,
car loans 36%, personal loans 24% or other purpose
loans 9%. The geographical concentration has not changed
significantly from the initial portfolio and still has a major concentration
in South of Italy (around 40% of current pool).
The ratings address the expected loss posed to investors by the legal
final maturity date (January 2023).
The principal methodologies used in rating this transaction 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 issue 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.
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Associate Analyst 1
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Compagnia Finanziaria 1 S.r.l. - 2007 Italian consumer loan ABS
No Related Data.
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