London, 08 July 2013 -- Moody's Investors Service has today downgraded the ratings of four senior
and four junior and mezzanine notes in four Italian residential mortgage-backed
securities (RMBS) transactions: Sestante Finance S.r.l.,
Sestante Finance S.r.l. - Series 2004;
Sestante Finance S.r.l. - Series 2005 and
Sestante Finance S.r.l. - Series 2006.
At the same time Moody's has confirmed the rating of one junior
note in Sestante Finance S.r.l. - Series 2004.
Insufficiency of credit enhancement to address sovereign risk and revision
of key collateral assumptions have prompted today's downgrade.
Today's rating action concludes the review of three notes placed on review
on 2 August 2012, following Moody's downgrade of Italian government
bond ratings to Baa2 from A2 on 13 July 2012. This rating action
also concludes the review of five notes placed on review on 13 Mar 2013,
due to the insufficiency of credit enhancement to address sovereign risk
following the introduction of additional factors in Moody's analysis to
better measure the impact of sovereign risk on structured finance transactions
(see "Structured Finance Transactions: Assessing the Impact of Sovereign
Risk", 11 March 2013).
For a detailed list of affected ratings, see towards the end of
the ratings rationale section.
RATINGS RATIONALE
Today's rating action primarily reflects the insufficiency of credit enhancement
to address sovereign risk and revision of key collateral assumptions.
Moody's confirmed the ratings of securities whose credit enhancement and
structural features provided enough protection against sovereign ,counterparty
risk and change in key collateral assumptions.
The determination of the applicable credit enhancement driving today's
rating actions reflects the introduction of additional factors in Moody's
analysis to better measure the impact of sovereign risk on structured
finance transactions (see "Structured Finance Transactions: Assessing
the Impact of Sovereign Risk", 11 March 2013). This report
is Available on www.moodys.com and can be accessed via the
following link: (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF319988).
-- Additional Factors Better Reflect Increased Sovereign
Risk
Moody's has supplemented its analysis to determine the loss distribution
of securitised portfolios with two additional factors, the maximum
achievable rating in a given country (the Local Currency Country Risk
Ceiling) and the applicable portfolio credit enhancement for this rating.
With the introduction of these additional factors, Moody's intends
to better reflect increased sovereign risk in its quantitative analysis,
in particular for mezzanine and junior tranches.
The Italian country ceiling, and therefore the maximum rating that
Moody's will assign to a domestic Italian issuer including structured
finance transactions backed by Italian receivables, is A2.
Moody's Individual Loan Analysis Credit Enhancement (MILAN CE) represents
the required credit enhancement under the senior tranche for it to achieve
the country ceiling. By lowering the maximum achievable rating
for a given MILAN, the revised methodology alters the loss distribution
curve and implies an increased probability of high loss scenarios.
-- Revision of Key Collateral Assumptions
Moody's has revised its lifetime loss expectation (EL) assumption in Sestante
Finance S.r.l. to 5.5% from 4.3%,
Sestante Finance S.r.l. - Series 2004 to 6.5%
from 5.0%; Sestante Finance S.r.l.
- Series 2005 to 7.0% from 5.2% and
Sestante Finance S.r.l. - Series 2006 to 10.49%
from 9.2%. Moody's has revised the MILAN CE
assumption to 22.5% from 20.0% in Sestante
Finance S.r.l. - Series 2004 and Sestante
Finance S.r.l. - Series 2005 and maintains
the MILAN CE assumption at 20.0% for Sestante Finance S.r.l.
and 30.0% for Sestante Finance S.r.l.
- Series 2006. The revision of expected loss assumptions
reflects the weak performance in these transactions.
-- Exposure to Counterparty Risk
The conclusion of Moody's rating review takes into consideration
the commingling exposure to Banca Popolare dell'Emilia Romagna s.c.a.r.l.
acting as collection account bank in the four transactions. The
sweeping frequency to the treasury account held with Bank of New York
Mellon (The) (Aa1/ P-1) is daily in all four transactions.
In addition Moody's rating review also takes into consideration
the exposure to Commerzbank AG (Baa1/P-2) acting as swap counterparty
in all four transactions. Moody's concluded that the rating
of the notes are not negatively affected by these counterparty exposures.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
In consideration of Moody's new adjustments, any further sovereign
downgrade would negatively affect structured finance ratings through the
application of the country ceiling or maximum achievable rating,
as well as potentially increased portfolio credit enhancement requirements
for a given rating.
As the euro area crisis continues, the ratings of 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 further negatively affect the ratings of the notes.
The methodologies used in these ratings were "Moody's Approach to Rating
RMBS Using the MILAN Framework" published in May 2013, and "The
Temporary Use of Cash in Structured Finance Transactions: Eligible
Investment and Bank Guidelines" published in March 2013. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
In reviewing these transactions, Moody's used ABSROM/ ABSCORE 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 or EL 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.
LIST OF AFFECTED RATINGS
Issuer: Sestante Finance S.r.l.
....EUR17.17M B Notes, Downgraded
to A3 (sf); previously on Mar 13, 2013 A2 (sf) Placed Under
Review for Possible Downgrade
....EUR13.36M C Notes, Downgraded
to Ba3 (sf); previously on Mar 13, 2013 Ba2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance S.r.l. - Series
2004
....EUR575.3M A Notes, Downgraded
to A3 (sf); previously on Aug 2, 2012 Downgraded to A2 (sf)
....EUR34.4M B Notes, Downgraded
to B1 (sf); previously on Aug 2, 2012 Ba2 (sf) Placed Under
Review for Possible Downgrade
....EUR15.6M C1 Notes, Confirmed
at Caa2 (sf); previously on Aug 2, 2012 Caa2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance S.r.l. - Series
2005
....EUR791.9M A Notes, Downgraded
to Baa2 (sf); previously on Mar 13, 2013 A3 (sf) Placed Under
Review for Possible Downgrade
....EUR47.35M B Notes, Downgraded
to Caa1 (sf); previously on Aug 2, 2012 B3 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance S.r.l. - Series
2006
....EUR342.25M A1 Notes, Downgraded
to Ba3 (sf); previously on Mar 13, 2013 Ba1 (sf) Placed Under
Review for Possible Downgrade
....EUR228.17M A2 Notes, Downgraded
to Ba3 (sf); previously on Mar 13, 2013 Ba1 (sf) Placed Under
Review for Possible Downgrade
REGULATORY DISCLOSURES
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.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit 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/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Steven Becker
Associate 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 eight notes in four Sestante Italian RMBS transactions
