London, 02 August 2012 -- Moody's has today downgraded the Aaa(sf) ratings of structured finance
securities guaranteed by the European Investment Fund (EIF, Aaa
stable) and backed by Italian, Spanish and Portuguese receivables,
to A2(sf), A3(sf) and Baa1(sf), respectively. Moody's
also placed the ratings of those securities backed by Spanish receivables
on review for further downgrade.
A list of affected securities and credit rating changes is available at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF293547.
This list is an integral part of this press release and identifies each
affected issuer.
Today's downgrades reflect Moody's concern that the EIF guarantee
would not cover all risks that arise from political, institutional,
financial and economic factors affecting the countries in which the receivables
are located and the affected securities are issued. The downgrades
do not reflect the willingness or ability of EIF to meet its obligations
under the guarantee. Rather, they reflect the risk,
most specifically in the event of a currency redenomination or the imposition
of capital controls, that the terms of the guarantee will not necessarily
ensure that amounts callable under the guarantee would be sufficient to
repay the securities in full by the final maturity date.
The rating review for further downgrade on the guaranteed securities backed
by Spanish receivables reflects the current rating review for downgrade
of the Spanish government's rating. During the review,
Moody's will reassess country risks affecting Spanish transactions
in general and the possibility of a currency redenomination in particular.
All of the affected securities benefit from the unconditional and irrevocable
guarantee of the EIF to pay any shortfall of interest or principal due,
on their respective due dates.
RATINGS RATIONALE
Today's downgrades reflect Moody's conclusion that the scope
of the EIF guarantee is unlikely to extend to certain low probability
but plausible events that could result from the euro debt crisis.
In particular, the rating agency concludes that the guarantee would
not cover the risk that currency redenomination or capital controls on
external payments could result in either the euro equivalent of redenominated
securities being less than the rated promise or guarantee payments being
trapped in a local account. All of the affected securities are
issued by local issuers under local law. Moody's analysis
suggests that a redenomination of the notes could well result in any claims
under the guarantee being calculated using the local currency to determine
any shortfall. In such a scenario, full performance by the
EIF on its payment obligations under the guarantee may not be sufficient
to repay the euro amount of the rated securities, resulting in a
payment default under Moody's definitions.
Moody's therefore considers the affected EIF guaranteed securities
to be exposed to risks that the rating agency has addressed in its country
ceilings of A2 for Italy and A3 for Spain, and the highest achievable
rating of Baa1(sf) for Portuguese structured finance securities.
Country ceilings address risks in a given country that arise from political,
institutional, financial and economic factors within or which affect
that country, including risks such as political instability,
civil unrest, regulatory and legal uncertainty, enforceability
of contracts, the risk of government intervention, expropriation/nationalisation
of local assets, the risk of systemic economic disruption,
crystallisation of severe financial stability risks, currency redenomination
and devaluation, among others. The highest rating achievable
for structured finance transactions similarly reflects the rating level
beyond which structural features or credit enhancement cannot fully mitigate
the impact of high severity events that include a disorderly government
default, an exit from the euro area, a banking system collapse
and changes in law.
The rating review for further downgrade on the guaranteed securities backed
by Spanish receivables reflects the current rating review for downgrade
of the Spanish government's rating. If the Spanish government's
rating were to fall further from its current level, the country
ceiling would likely be reassessed at that time. The ratings of
Spanish securities that are exposed to country risks, including
a currency redenomination or capital controls, will reflect the
conclusion of the sovereign rating review.
--Italian Country Ceiling
On 13 July, Moody's lowered to A2 from Aaa the Italian country ceiling
(http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143384).
Italy's new country ceiling reflects Moody's revised assessment of the
risk of very severe economic and financial dislocation, typically
associated with payment system and capital controls and, in the
case of euro area countries, exit from the euro and redenomination.
In Moody's view, the risk of such events, while still
very low, has increased. If the Italian government's rating
were to fall further from its current Baa2 level, the country ceiling
would be reassessed and likely lowered at that time.
--Spanish Country Ceiling
On 26 June 2012, Moody's lowered to A3 the Spanish country ceiling
(http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143384).
Spain's revised country ceiling reflects the increased risk of severe
financial and economic dislocation and captures Moody's assessment of
country risks that include the risk of systemic economic disruption,
the crystallisation of severe financial stability risks and factors implying
regulatory and legal uncertainty such as the possibility of currency redenomination.
The Spanish government's ratings remain on review for further downgrade
as Moody's continues to reassess these risks. The conclusion
of the sovereign rating review may lead Moody's to further lower
its country ceiling for Spain.
--Portugal Highest Achievable Rating
On 17 February 2012, Moody's lowered the highest achievable structured
finance rating in Portugal to Baa1(sf) from A2(sf) following the downgrade
of the ratings of the Portuguese government on 13 February 2012.
The changes that have been announced reflect an increase in the probability
of severe economic stress and damage to the banking system, which
affect all issuers in the economy substantially beyond the direct effect
of government default. They also reflect the low but rising probability
of Portugal exiting the euro and redenominating. The highest achievable
structured finance rating may be revised further downwards if the likelihood
of those events were to increase.
--Rating Methodologies
Sovereign credit quality impacts structured finance and covered bonds
ratings primarily through the performance of underlying collateral and
the credit quality of counterparties, as detailed in the Rating
Implementation Guidance "How Sovereign Credit Quality May Affect Other
Ratings" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_139495).
Structured finance and covered bond securities benefit from revenue diversification,
credit enhancement and other structural features. As a result they
can achieve higher ratings than other non-structured issuers and
may, where certain conditions are met, exceed the sovereign
by a limited number of notches, subject to the constraint of the
relevant country ceiling.
The country ceiling (or 'guideline') is described in the Special Comment
"Local Currency Guidelines " (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_32373).
Moody's is considering reintroducing individual country ceilings for other
euro area members, which could affect further the maximum structured
finance rating achievable in those countries, as discussed in Moody's
special report "Rating Euro Area Governments Through Extraordinary Times
-- An Updated Summary" ( http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_136315).
The rating considerations described in this press release complement the
principal rating methodologies applicable to each ABS and CMBS transaction,
which are disclosed in the list of affected credit ratings (link provided
in this press release).
ASSUMPTION AND SENSITIVITY
Key modelling assumptions, sensitivities, cash-flow
analysis and stress scenarios for the affected transactions have not been
updated as the rating action has been primarily driven by Moody's
analysis of the guarantee coverage and the resulting application of Moody's
local maximum achievable rating.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF293547
for the list of each credit rating affected by a change in rating or review
status. This list is an integral part of this press release and
provides, for each of the credit ratings covered, Moody's
disclosures on the following items:
- Ratings Rationale
- Methodologies and Models used
- Person Approving Credit Ratings
- Releasing office
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 the ratings are the following:
parties involved in the ratings, public information, 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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on moodys.com
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.
Caroline?Pichon
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
Henry?Charpentier
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Ariel Weil
VP-Senior Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sebastian Schranz
Analyst
Structured Finance Group
Moody's Deutschland GmbH
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 certain structured finance securities guaranteed by EIF
