London, 26 July 2012 -- Moody's downgraded 7 notes out of 2 transactions issued by Eurohome (Italy)
Mortgages S.r.l. and Eurohome Mortgages 2007-1
S.r.l. All affected ratings are listed at the end
of this press release.
The ratings of classes A, B, C and D notes in Eurohome (Italy)
Mortgages and of class A and B notes in Eurohome Mortgages 2007-1
were placed on review for downgrade in May 2011 due to weak performance.
RATINGS RATIONALE
Today's downgrade takes into account the revision of collateral performance
assumptions and the amount of available credit enhancement supporting
the notes.
--- Key collateral assumptions revised
Both transactions are performing worse than expected since their latest
rating reviews.
Eurohome (Italy) Mortgages S.r.l. closed in January
2008 and is backed by mortgages originated by Deutsche Bank Mutui in Italy.
The transaction continued to deteriorate since the last review in May
2009. As of July 2012 loans more than 90 days delinquent were equal
to 8.28% of the current pool balance. This is the
highest proportion of loans more than 90 days delinquent among Italian
RMBS transactions and it is far above the Italian average of approx.
1.6%. Cumulative defaults as a percentage of the
original pool balance reached 18.2% as of July 2012.
The provisioning mechanism for defaulted loans has led to a complete drawing
on the reserve fund and the build up of an unpaid principal deficiency
ledger (PDL) of 11.2% of original pool balance. Following
the breach of interest deferral triggers, the interest payments
on Class E and Class D are currently subordinated to payment of principal
on the most senior notes. Interest on class B and C notes will
also be subordinated once cumulative defaults reach 19.5%
and 23.75% respectively.
After considering the current amounts of cumulative defaults and completing
a roll rate and recovery rate analysis for the portfolio Moody's has increased
its life time expected loss assumption for Eurohome (Italy) Mortgages
S.r.l. from 7.2% to 17% of the
original pool balance. During the review Moody's has re-assessed
updated loan-by-loan information and increased its MILAN
CE assumption to 42%.
Eurohome Mortgages 2007-1 S.r.l. closed in
July 2007 and is backed by mortgage loans originated by Deutsche Bank
in Germany and Italy. The transaction continued to deteriorate
since the last review in February 2010. As of May 2012 loans more
than 90 days delinquent were equal to 7.9% of the current
balance for the combined pool. Cumulative defaults as a percentage
of the original pool balance reached 17.28% in the Italian
sub pool and 13.14% in the German sub pool. The provisioning
mechanism in the Italian sub pool has led to a complete drawing of the
reserve fund and an unpaid principal deficiency ledger standing at 6.9%
of original balance.
After considering the current amounts of cumulative defaults and completing
a roll rate and recovery rate analysis for the portfolio Moody's has increased
its life time expected loss assumption as percentage of the original pool
balance to 15.5% from 9% in the combined pool.
Moody's has increased the expected loss for the German sub-pool
to 13% and the expected loss for the Italian sub-pool to
17% of the original pool balance.
During the review Moody's has re-assessed updated loan-by-loan
information and increased its MILAN CE assumption to 42% for the
combined pool. Moody's increased the MILAN CE to 38% and
to 44% for the German and Italian portfolio respectively.
--- Decreasing levels of credit enhancement
Increased defaults and limited recoveries led to decreased levels of credit
enhancement available in Eurohome transactions.
--- Counterparty Risk
Deutsche Bank (A2/P-1) acts as Servicer, Principal Paying
Agent, Liquidity Facility Provider and Hedge Counterparty in both
Eurohome transactions. Moody's considers this level of counterparty
risk as commensurate for the ratings in the transactions.
Factors and Sensitivity Analysis
Expected loss assumptions remain subject to uncertainty with regard to
general economic activity, interest rates and house prices.
Lower than assumed realised recovery rates or higher than assumed default
rates would negatively affect the ratings in these transactions.
As the Euro area crisis continues, the rating of the structured
finance notes remain exposed to the uncertainties of credit conditions
in the general economy. The deteriorating creditworthiness of euro
area sovereigns as well as the weakening credit profile of the global
banking sector could negatively impact the ratings of the notes.
Following the downgrade of Italy's long-term government bond rating
to Baa2, Moody's lowered the country ceiling for Italy from Aa2
to A2. Moody's is continuing to consider the impact of the deterioration
of sovereigns' financial condition and the resultant asset portfolio deterioration
on mezzanine and junior tranches of structured finance transactions.
The principal methodology used in these ratings was Moody's Approach to
Rating RMBS in Europe, Middle East, and Africa published in
June 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and determine the loss for each tranche. The cash flow
model evaluates all default scenarios that are then weighted considering
the probabilities of the lognormal distribution assumed for the portfolio
default rate. In each default scenario, the corresponding
loss for each class of notes is calculated given the incoming cash flows
from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss for each tranche is the sum product
of (i) the probability of occurrence of each default scenario; and
(ii) the loss derived from the cash flow model in each default scenario
for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
The list of affected ratings:
Issuer: Eurohome (Italy) Mortgages S.r.l.
....EUR211.95M A Notes, Downgraded
to Baa1 (sf); previously on Feb 21, 2012 Downgraded to Aa2
(sf) and Remained On Review for Possible Downgrade
....EUR15.9M B Notes, Downgraded
to Caa1 (sf); previously on May 20, 2011 A3 (sf) Placed Under
Review for Possible Downgrade
....EUR11.55M C Notes, Downgraded
to Ca (sf); previously on May 20, 2011 Ba1 (sf) Placed Under
Review for Possible Downgrade
....EUR7.2M D Notes, Downgraded
to C (sf); previously on May 20, 2011 Caa1 (sf) Placed Under
Review for Possible Downgrade
Issuer: Eurohome Mortgages 2007-1 plc
....EUR262.5M A Notes, Downgraded
to Ba1 (sf); previously on May 20, 2011 A2 (sf) Placed Under
Review for Possible Downgrade
....EUR15M B Notes, Downgraded to Caa2
(sf); previously on May 20, 2011 B1 (sf) Placed Under Review
for Possible Downgrade
....EUR12M C Notes, Downgraded to C
(sf); previously on Feb 26, 2010 Downgraded to Ca (sf)
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
public information, parties involved in the ratings, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Sebastian Hoepfner
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Barbara Rismondo
Senior Vice President
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Thomas Zmugg
AVP-Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Italian RMBS notes issued by Eurohome Mortgages
