Madrid, April 12, 2011 -- Moody's Investors Service today downgraded the ratings of 5 tranches
of Portuguese asset-backed securities (ABS) and 18 tranches of
residential mortgage-backed securities (RMBS) transactions to Aa2(sf)
and 4 tranches of ABS and 20 tranches of RMBS transactions to A1(sf).
In addition, the rating agency has placed on review for possible
downgrade the ratings of the mezzanine and junior tranches on two ABS
transactions and the Aaa ratings of two Portuguese electricity tariff
deficit transactions. The affected ratings remain on review for
further possible downgrade pending: (i) the conclusion of the rating
review of Portuguese government and bank ratings; and (ii) Moody's
detailed review of the collateral and structural features of each transactions.
Today's action does not affect Portuguese ABS tranches guaranteed
by the European Investment Fund (EIF, rated Aaa).
Most Portuguese structured finance transactions cannot retain or achieve
ratings above Aa2(sf) unless they benefit from external guarantees from
highly rated counterparties or have both a robust structure and assets
that are relatively less sensitive to country risk.
All affected ratings appear at the end of the press release and in separate
data supplement available for download under the following links:
- ABS: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF242909
- RMBS: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF242391
RATINGS RATIONALE
- Increased Political, Budgetary and Economic Uncertainty
and Weaker Banking System Weaken Structured Finance Transactions
Today's rating actions follow Moody's successive downgrades
of Portugal's government rating from A1 to A3 on 15 March 2011 and
from A3 to Baa1 on 5 April 2011 ("Moody's downgrades Portugal's
bond ratings to Baa1 from A3, still under review down").
Also, Moody's downgraded Portuguese banks on 6 April 2011
("Moody's takes rating actions on Portuguese banks").
The fragility of Portugal's financial position and that of its banking
system weaken the performance of structured finance transactions in different
ways. The deteriorating economic environment and possibly the government's
ambitious deficit reduction targets will hurt obligor performance.
A weak macroeconomic environment, combined with a weaker banking
system, sets the stage for a credit crunch, which in turn
would result in refinancing difficulties for SMEs. Many Portuguese
SMEs either are borrowers in ABS transactions or employ obligors in the
pools backing consumer ABS or RMBS. Last, the weakening of
banks increases operational risk from the potential disruption of their
performance as transaction parties, such as servicers.
The downgrade of Portugal reflects a combination of factors including:
(i) the uncertain political outlook, following the resignation of
the government after the rejection of the revised budget measures announced
on 11 March 2011 and the resulting reduction in the speed and decisiveness
of policy making; (ii) the short- and medium-term funding
challenges for the government; and (iii) the medium-term implications
of revisions to the estimates for the budget deficit and outstanding government
debt for fiscal consolidation. Portugal's Baa1 rating remains
on review for possible downgrade given the uncertainties surrounding the
political outlook and potential measures to be taken after the June 2011
elections.
- Highest Achievable Rating for Most Portuguese Structured Finance
Ratings is Aa2(sf)
Moody's no longer expects most Portuguese structured finance transactions
to retain or achieve a rating of Aa2(sf) or above, aside from a
few exceptions discussed below. The primary reason for this conclusion
is the increased likelihood of high severity events. Our recent
multi-notch downgrades of the Portuguese government's rating
reflect this increased likelihood.
The highest rating achievable for most Portuguese structured finance transactions
reflects the rating level beyond which structural features or credit enhancement
cannot fully mitigate the impact of high severity events and the level
of uncertainty around them. Regardless of the structural features
or the amount of credit enhancement, structured finance transactions
are not immune to the risk of certain high severity events. These
events include a severe macroeconomic decline, deterioration in
a sovereign or local banks' creditworthiness and political uncertainties.
In addition, while Moody's central scenario does not include a sovereign
default or distressed exchange, the consequences of either event,
including possible changes in the terms or enforcement of certain debt
contracts, could overwhelm the benefits of credit enhancement and
structural mitigants.
Nonetheless, in analysing each structured finance transaction,
Moody's will continue to recognise that transactions with high credit
enhancement can sustain significant asset performance deterioration and
that operational risk mitigants can reduce the linkage between the structured
finance ratings and the credit quality of key transaction parties.
- Moody's Downgrades Senior Standard Portuguese ABS/RMBS
to Aa2(sf) or to A1(sf) and Leaves Ratings on Review for Downgrade
Moody's expects greater rating downgrades for tranches that have
lower credit enhancement in their respective asset class. Therefore,
as a first step, Moody's downgraded senior tranches to the
highest achievable rating of Aa2(sf) or, for the senior tranches
that have relatively low credit enhancement, to A1(sf). Moody's
placed on review for possible downgrade mezzanine and junior tranches
that have low credit enhancement levels compared with their current rating
levels.
All ratings remain on review for possible further downgrades pending:
(i) analysis of the deal-specific performance, the remaining
life of tranches and the structural features, such as credit enhancement
and operational risks mitigants; and (ii) the conclusion of the current
review for possible downgrade on Portuguese sovereign and bank ratings.
- Moody's Places on Review for Possible Downgrade Aaa(sf)
Ratings of Portuguese Electricity Tariff Deficit ABS
For the Aaa(sf) ratings placed on review for possible downgrade for two
electricity tariff deficit transactions (EnergyOn No.1 and No2
issued by Tagus - Sociedade de Titularização de Créditos,
S.A), Moody's considers that remote macroeconomic stress
scenarios involving sharp spikes in electricity prices or declines in
consumption, combined with severe fiscal tightening, could
result in political pressure for changes to the terms of the tariff deficit
repayment mechanism underlying the transactions. In addition,
the rating agency believes that severe financial distress scenarios for
EDP Distribuição -- Energia, S.A.,
a subsidiary of EDP -- Energias de Portugal, S.A.
(rated Baa1/P-2, on review for possible downgrade),
in its capacity as agent of the Portuguese national electricity system
for the delivery of payments on the assets securitised, increase
the risk of temporary payment disruptions despite strong mitigation mechanisms.
However Moody's views those electricity tariff deficit transactions
as more resilient to sovereign or corporate distress scenarios than other
Portuguese structured finance transactions and thus as likely to retain
higher ratings. These electricity tariff deficit transactions have
both a robust structure and assets that are relatively insensitive to
country risk. As a result, Moody's expects to continue
to rate them above the highest achievable ratings for most Portuguese
securitisations.
Rating Methodologies
The determination of the highest achievable ratings and minimum credit
enhancement requirements described above complement the applicable principal
methodologies for each asset class. To identify the primary methodology
for each of the asset classes of the affected transactions, please
refer to the index of methodologies under the research and ratings tab
on Moodys.com.
Moody's rating methodology for the Electricity Tariff Deficit transactions
considers the strength of the specific legislation enacted to set forth
the regulatory claims and the repayment mechanisms, the creditworthiness
and strategic role of the distribution grid operator, EDP Distribuição
-- Energia, S.A., and the creditworthiness
of key counterparties. For further information on the rating approach,
please see the new issue reports publicly available for the EnergyOn No.1
and No. 2 Securitisation Notes.
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 these transactions in the past six months.
LIST OF AFFECTED SECURITIES
ABS transactions
Issuer: AR FINANCE 1 plc
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Mar 2, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Atlantes Finance No. 3
A Certificate, Downgraded to Aa2 (sf) and Placed Under Review for
Possible Downgrade; previously on Jul 29, 2010 Assigned Aaa
(sf)
Issuer: BST SME NO.1
A Certificate, Downgraded to Aa2 (sf); previously on Mar 14,
2011 Assigned Aaa (sf) and Placed Under Review for Possible Downgrade
Issuer: Caravela SME No.1 Limited
A Notes, Downgraded to A1 (sf); previously on Jun 22,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
B Notes, Downgraded to A1 (sf); previously on Jun 22,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
C Notes, A2 (sf) Placed Under Review for Possible Downgrade;
previously on Nov 28, 2008 Assigned A2 (sf)
D Notes, Baa2 (sf) Placed Under Review for Possible Downgrade;
previously on Nov 28, 2008 Assigned Baa2 (sf)
E Notes, Ba2 (sf) Placed Under Review for Possible Downgrade;
previously on Nov 28, 2008 Assigned Ba2 (sf)
Issuer: SAGRES Sociedade de Titularização de Créditos,
S.A. (Douro SME Series 1)
A Notes, Downgraded to Aa2 (sf); previously on Jun 22,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
Issuer: (EnergyOn No. 2) Tagus - Sociedade de Titularização
de Créditos, S.A.
A Certificate, Aaa (sf) Placed Under Review for Possible Downgrade;
previously on Dec 3, 2009 Assigned Aaa (sf)
Issuer: (EnergyOn No. 1) Tagus - Sociedade de Titularizacao
de Creditos, S.A.
A1 Certificate, Aaa (sf) Placed Under Review for Possible Downgrade;
previously on Mar 6, 2009 Assigned Aaa (sf)
Issuer: Lusitano SME No. 2
A Certificate, Downgraded to Aa2 (sf) and Remains On Review for
Possible Downgrade; previously on Jan 14, 2011 Assigned Aaa
(sf) and Placed Under Review for Possible Downgrade
B Certificate, A2 (sf) Placed Under Review for Possible Downgrade;
previously on Jan 14, 2011 Assigned A2 (sf)
Issuer: NOVA Finance No. 4 Limited
A Certificate, Downgraded to A1 (sf); previously on Jun 22,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
B Certificate, Downgraded to A1 (sf); previously on Jun 22,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
RMBS transactions
Issuer: Atlantes Mortgage No. 1 PLC
A Note, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Azor Mortgages Public Limited Company
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Dec 23, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Bocage Mortgages No. 1 Limited
A Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Bocage Mortgages No. 2 Limited
A Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Douro Mortgages No. 1 Notes
A Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: DOURO MORTGAGES No. 2
A1 Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR1125M A2 Note, Downgraded to
A1 (sf) and Remains On Review for Possible Downgrade; previously
on Jun 22, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Issuer: DOURO MORTGAGES No. 3
A Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOTOTTA No1. PLC
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOTOTTA NO. 4 PLC
A Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: HIPOTOTTA No 5 plc
A2 Notes, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Notes, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Hipototta No.7 Limited
A2 Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Hipototta No. 8 Limited
A2 Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
....EUR40.6M B Notes, Downgraded
to A1 (sf) and Remains On Review for Possible Downgrade; previously
on Jun 22, 2010 Aa3 (sf) Placed Under Review for Possible Downgrade
Issuer: HIPOTOTTA 12
A Notes, Downgraded to Aa2 (sf) and Placed Under Review for Possible
Downgrade; previously on Feb 25, 2011 Assigned Aaa (sf)
Issuer: Lusitano Mortgages No. 1 PLC
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Lusitano Mortgages No. 2 PLC
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: LUSITANO MORTGAGES No. 3 PLC
A Bond, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Bond, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Lusitano Mortgages No. 4 PLC
A Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on May 7, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on May 7, 2010 Aa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Lusitano Mortgages nº 5
A Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on May 7, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Lusitano Mortgages No.6 Limited
A Note, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Magellan Mortgages No. 1 Public Limited Company
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Magellan Mortgages No. 2 plc
A Notes, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Magellan Mortgages No. 3 plc
A Notes, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Magellan Mortgages No. 4 plc
A Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Note, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: Navigator Mortgage Finance No. 1 plc
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Mar 2, 2011 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Nostrum Mortgages 2003-1 PLC
A Bond, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Nostrum Mortgages No.2
A Notes, Downgraded to Aa2 (sf) and Placed Under Review for Possible
Downgrade; previously on Nov 5, 2010 Assigned Aaa (sf)
Issuer: Pelican Mortgages No. 1 Plc
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Dec 23, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Pelican Mortgages No. 2 Plc
A Bond, Downgraded to Aa2 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
Issuer: Pelican Mortgages No.3 plc
A Notes, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aaa (sf) Placed Under
Review for Possible Downgrade
B Notes, Downgraded to A1 (sf) and Remains On Review for Possible
Downgrade; previously on Jun 22, 2010 Aa2 (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
Ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuers or obligations satisfactory for the purpose of maintaining
credit ratings.
The lead analyst and rating office for each of the transactions affected
are generally different from the contact and office listed at the end
of this press release. For each transaction, the lead analyst
name is available on the issuer page, and the rating office is available
on the ratings tab of the issuer on www.moodys.com.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
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
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Maria Turbica Manrique
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Annick Poulain
MD - Structured Finance
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Portuguese ABS and RMBS structured finance transactions
