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15 Oct 2009
Approximately USD 5.5 million of debt securities affected
London, 15 October 2009 -- Moody's Investors Service has today downgraded the following classes of
Notes issued by Baltic-American Mortgage Trust, LLC:
- Class A, Downgraded to Baa3 from A3; previously on
18 June 2009 Downgraded from Aa2
- Class B, Downgraded to B1 from Ba1, previously on
18 June 2009 Downgraded from Baa1
Today's rating action is prompted by the increased loss expectations for
this transaction due to the continuing deterioration of the Latvian economy
and the implications of a potential devaluation of the Latvian currency.
Currency devaluation in Latvia would lead to increased rate of default
in this transaction, which is backed by mortgage loans denominated
in US Dollars. Currently, Latvian currency is pegged to the
Euro. However, if it were to devalue, this would put
significant financial pressure on the borrowers, whose incomes are
mainly denominated in the local currency. To take this into account,
Moody's has incorporated the increased risk of devaluation on a
probability weighted basis into the expected loss assumption, which
resulted in the increase of the assumed expected loss to 6.5%.
In addition, since a large proportion of lending in Latvian market
has historically been denominated in foreign currencies, currency
devaluation would result in significant financial pressure on the Latvian
consumer. This would put increased pressure on the government to
assist its constituents by, for example, redenominating the
mortgage loans from foreign currencies to the local currency at the unfavorable
exchange rates. The uncertainty associated with such possible government
actions has been further increased recently by the legislation proposal
of the prime minister to limit the liability of the borrower under the
mortgage loan to the value of the property. Such program or the
redenomination of the loans into the local currency as described above
could lead to significant increase in losses in this transaction.
Therefore, in order to incorporate these additional risks Moody's
has increased the probability of the redenomination scenario, which
is incorporated in its cashflow analysis as described in the Special Report
entitled "Impact of Redenomination Risk on Emerging Market RMBS and ABS
Baltic-American Mortgage Trust, LLC closed in 2004 and represented
the first securitisation in Latvia and the first mortgage-backed
transaction in the Baltic region. The mortgage loans backing the
Certificates were originated by the Baltic-American Enterprise
Fund (BAEF), which is a private US Corporation, initially
funded by a US Government grant, whose mission is to promote the
development of market economy and specifically mortgage market in the
Baltic Region. In 2008 all existing assets of BAEF were sold to
Allied Irish Banks, p.l.c. (A1, P-1)
that had established three local branches to operate in the Baltics including
one in Latvia to replace Baltic-American Mortgage Holdings,
LLC as Servicer for this transaction.
The pool factor is equal to 9.10% (the current size of the
pool is USD 5.9 million) and the credit enhancement to the most
senior class is provided by the subordination of class B (8.06%)
and the overcollateralisation currently equal to 6% of the pool
balance. Class A and Class B are currently paying pro-rata
and they would only revert to sequential repayment in case the excess
spread in the transaction falls below 0.50% of the current
pool balance. Both classes are also benefiting from a basis risk
reserve which can only be used to cover interest rate exposure.
The total delinquencies in this transaction are at 3.14%
of the current portfolio balance as of September 2009 and there have been
no losses recorded to date in this transaction. However,
the total delinquencies increased in the last quarter and in Moody's opinion
the performance is likely to deteriorate considering that further economic
contraction is expected in the near term.
Moody's previous rating action on the notes issued by Baltic-American
Mortgage Trust, LLC was on 18 June 2009 when the ratings on Class
A and Class B were downgraded from Aa2 to A3 and from Baa1 to Ba1 respectively.
Moody's monitors this transaction using the rating methodology described
in the reports: "Moody's Approach to Rating RMBS in Emerging Securitisation
Markets -- EMEA" dated 8 June 2007, "Cash Flow Analysis
in EMEA RMBS: Testing Structural Features with the MARCO Model",
published in January 2006 and "Moody's Methodology for Rating RMBS in
Europe, Middle East and Africa (EMEA)" dated 14 October 2008 which
can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Credit Policy & Methodologies
directory. 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.
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Latvian RMBS notes issued by Baltic-American Mortgage Trust, LLC
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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