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I AGREE
07 Apr 2011
EUR 246.8M of debt securities affected
London, 07 April 2011 -- Moody's Investors Service announced today that it has downgraded the ratings
of two classes of notes issued by H.E.A.T.
Mezzanine. The notes affected by today's rating action are as follows:
Issuer: H.E.A.T Mezzanine S.A.
- Compartment 3 Notes
EUR233M A Notes, Downgraded to Caa3 (sf); previously on Sep
3, 2010 Downgraded to B3 (sf)
EUR31M B Notes, Downgraded to C (sf); previously on Sep 3,
2010 Downgraded to Ca (sf)
H.E.A.T Compartment 3 is a transaction collateralised
by a static portfolio of German SME mezzanine loans. On the last
payment date (October 2010), Class A was paid down by a total EUR
2.03 million from excess spread proceeds and scheduled amortisation
payments and currently has EUR 215.8 million of notional outstanding.
RATINGS RATIONALE
The transaction has suffered two defaults worth EUR 15 million since last
monitoring in September 2010 (6.7% of the pool at last monitoring).
Once the most recent insolvency is considered under the terms of the transaction
as a Principal Deficiency Event (PDE) the transaction will have experienced
EUR 106 million of PDEs (33.8% of the initial pool) since
closing in February 2007.
The main driver of the downgrade is the recent insolvency of company no.
58 with a notional of EUR 12 million, which was not included in
the obligors stressed at last monitoring. By removing this asset
from the pool, the Class A is now under-collateralised and
reliant on future excess spread, recovery or restructuring benefits
to build par. Based on the information provided in the latest report
dated 3 February 2011, there are a further four companies Moody's
considers likely to experience a PDE and seven more companies that retain
an elevated level of default risk for a total amount of EUR 21 million
and EUR 23.5 million respectively.
Due to the very low OC ratios on the notes, default scenarios were
not simulated. Analysis was based on loss given default analysis
various default and recovery scenarios. Reflecting this,
the ratings on Class A remain commensurate with the Moody's expected recoveries
for the notes, as outlined in the paper titled "Moody's Approach
to Rating Structured Finance Securities in Default" (November 2009).
In addition to the performing pool of obligors, Moodys gave credit
to proceeds received from early terminations, held in the recovery
account to be released in to the waterfall on the scheduled maturity (22
February 2014), for an amount equal to EUR 13.2 million.
In its base case, Moody's did not give credit to potential
recoveries or restructuring benefits accruing from the amended transaction
documents in connection with the noteholder consent as of October,
2010.
Moody's completed its analysis by further sensitivity runs, including
various additional jump to default stresses for weaker obligors in the
pool and corresponding haircuts to the available excess spread resulting
from further defaults in the pool. Moody's notes as well that the
pool remains highly concentrated, with the performing pool containing
44 obligors with the top five obligors amounting to 26.0%
of the pool.
Sources of additional performance uncertainties include:
1) Low portfolio granularity: The performance of the portfolio depends
to a large extent on the credit conditions of a few large obligors that
are rated non investment grade, especially when they experience
jump to default. Due to the pool's lack of granularity, Moody's
supplements its base case scenario with individual scenario analysis.
2) Potential for elevated refinancing difficulty regarding the subordinated
debt instruments in this portfolio, particularly among obligors
with weaker credit quality.
3) Recoveries: recoveries so far have been low on this portfolio,
but an amendment to the transaction to enable restructurings in 2010 could
lead to higher than expected recoveries in future.
The principal methodologies used in rating the notes are "Moody's Approach
to Rating Structured Finance Securities in Default" published in November
2009,"Moody's Approach to Rating Collateralized Loan Obligations"
published in August 2009, "Moody's Approach to Rating Corporate
Collateralized Synthetic Obligations" published in September 2009,
and "Moody's Approach to Rating CDOs of SMEs in Europe" published in February
2007.
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
6 months.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure
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Please see ratings tab on the issuer/entity page on Moodys.com
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of each rating category and the definition of default and recovery.
London
Greg O''Reilly
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Florence Tadjeddine
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.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades SME CDO Notes of H.E.A.T. Mezzanine S.A. -- Compartment 3 Notes
No Related Data.
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