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Global Credit Research - 19 Oct 2010
London, 19 October 2010 -- Moody's Investors Service announced today the following rating action
on notes issued by Vela Public Sector Srl.
....EUR328.5M (current balance EUR
115.323) Class A2 Notes, Downgraded to A1 (sf); previously
on Jun 10, 2010 Aa3 (sf) Placed Under Review for Possible Downgrade
Moody's said the rating action on the notes results primarily from
the heightened concentration risk in this amortised portfolio and the
increased exposure to credit estimates versus publicly rated issuers.
This transaction is a static CLO of a portfolio of loans to Italian public
entities which closed in November 2004. The closing loan portfolio
of EUR 657.5 million has substantially amortised to a current size
of EUR 115.322 million, with Class A1 notes repaid in full
and Class A2 notes repaid by 65% of their initial principal balance.
Class A2 notes benefit from EUR 27.5m (roughly 20%) credit
enhancement provided by EUR 9.4 million Class B notes and an EUR
18.1 million reserve fund.
As a result of the substantial amortization, the portfolio profile
has changed considerably since closing. Currently, the pool
includes exposures to 90 Italian public debtors, mainly Municipalities
74.2%, Regions 14.2%, Provinces
4.4%, with the top six obligors representing 60%
of the pool. About 25% of the current portfolio is publicly
rated by Moody's. For the balance, Moody's has assessed
the creditworthiness through credit estimates and Q Scores which have
been recently updated. The transaction was placed on watch in August
2010 for possible downgrade pending receipt of this refreshed data.
Based on the updated data, the pool has a WARF of 130 which implies
an average credit quality of A3.
Moody's also notes that about 35% of the collateral pool consists
of loans whose credit quality has been assessed through Moody's credit
estimates and Q scores. As credit estimates and Q scores do not
carry credit indicators such as ratings reviews and outlooks, a
stress of a quarter notch-equivalent assumed downgrade was applied
to each of these estimates; moreover the credit estimates for two
debtors in the portfolio with exposures above 3% were stressed
by 2 notches in our base case scenario. Also, the quasi sovereign
and sovereign profile of the majority of the debtors who are all domiciled
in Italy leads to a 100% correlation assumption in our model.
Moody's performed a number of sensitivity analyses, including
additional 15% and 30% DP stresses to each exposure combined
with recovery rates of 55%, 60% and 65%.
Additional sensitivity analysis was conducted by applying a 3 notch stress
on the largest exposures carrying a Q score rating and downgrading individually
to Caa2 the largest exposures for which the creditworthiness was assessed
through credit estimates. Moody's ascertained that the model
output for the rated tranche would not be impacted by more than 1 notch
in any sensitivity run compared to the base case, thereby evidencing
that the available credit enhancement and credit quality of the portfolio
are resilient to our standard stresses.
The principal Methodology used in rating Vela Public Sector was "Moody's
Approach to Rating Collateralized Loan Obligations" published in
August 2009 and "Moody's Approach to Rating Corporate Collateralized
Synthetic Obligations" published in September 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Moody's investors service applied the Montecarlo simulation framework
within CDOROM. These models are available on Moodys.com
under Products and Solutions—Analytical models, upon return
of a signed free licensed agreement
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
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three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Investors Service provides a date that it believes is the most reliable
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's downgrades EUR 115.323 Notes of Vela Public Sector S.r.l
One Canada Square
London E14 5FA
No Related Data.
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