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09 Apr 2008
Moody's downgrades five classes of German RMBS issued by Provide Gems 2002-1 plc
EUR 159 million of German RMBS affected.
Frankfurt, April 09, 2008 -- Moody's Investors Service has today downgraded the following Classes of
Notes issued by Provide Gems 2002-1 plc, a synthetic German
RMBS transaction. The following ratings have been changed:
- EUR 32,000,000 Class A Floating Rate Credit Linked
Notes, downgraded from Aaa to Aa1;
- EUR 46,000,000 Class B Floating Rate Credit Linked
Notes, downgraded from Aa1 to A2;
- EUR 38,000,000 Class C Floating Rate Credit Linked
Notes, downgraded from Ba1 to B1;
- EUR 29,000,000 Class D Floating Rate Credit Linked
Notes, downgraded from Caa1 to Ca;
- EUR 14,000,000 Class E Floating Rate Credit Linked
Notes, downgraded from Caa3 to C.
Moody's rating action was prompted by (1) the level of outstanding credit
events reported as of February 2008 totalling EUR 53.9 million
(9.9 per cent of current pool balance) combined with a still high
level of arrears that have not yet resulted in credit events; (2)
Moody's expectation of future credit events based on a roll rate
analysis conducted for the loans currently in arrears and the performing
loans of the current outstanding portfolio; (3) the observed high
loss severity of 85% for the credit events that have been worked-out
to date; (4) the reduction of credit enhancement available for the
rated notes as EUR 18.1 million of losses have been allocated to
the transaction so that only about EUR 1.9 million of the unrated
Threshold Amount remain outstanding.
Since the downgrade of Classes C, D and E Notes in January 2005,
more than EUR 40 million of mainly credit impaired loans have been worked-out
or removed from the pool, but the total amount of outstanding credit
events has remained relatively stable as other loans have migrated in
the same time period into higher delinquency buckets and into credit events.
Moody's expects the total amount of credit events (currently outstanding
plus future credit events) to approximate EUR 70 million. Since
closing of the transaction in 2002, EUR 21.3 million of credit
events were eligible for loss allocation while EUR 36.3 million
of loans have been removed from the pool without respective losses being
allocated to the transaction. According to the servicer,
most of such removals were related to loans that had realised a credit
event or significant arrears. Moody's expects further removals
to take place over the remaining term of the transaction, potentially
reducing the actual amount of credit events eligible for loss allocation.
The downgrades on the Class D Notes and the Class E Notes reflect Moody's
view that the principal of both classes will be impacted by loss allocations
in the short to medium term. The downgrade of these classes is
driven by expected future write downs due to loss allocations also reducing
the future amounts of interest payable under these Notes, so that
the expected net present value loss as of today for both classes is not
commensurate with the previously assigned Caa1 and Caa3 ratings.
The downgrade of the Class C Notes reflects the probability that the amount
of future losses allocated to the transaction will exceed the amount of
subordination of EUR 44.9 million currently available for this
Class of Notes. Whether losses will ultimately be allocated to
Class C Notes is in Moody's opinion highly depended on future recovery
rates and the amount of removed reference claims in future periods.
The Class A Notes and the B Notes are not at risk to experience any losses
in scenarios close to Moody's current base case expectation;
nevertheless ratings on both classes are downgraded as a result of (1)
the increased amount of credit events expected compared to Moody's
last rating action; (2) the uncertainly regarding the transaction's
future performance and (3) the uncertainty regarding the amount of removed
reference claims in future periods.
In Moody's opinion the performance of this transaction is very distinct
from the general performance trend of the German and European RMBS markets
as all performance indicators for this transaction indicate, due
to several reasons, a far weaker performance than the market average.
Provide Gems 2002-1 is a transaction by Eurohypo, under which
the credit risk of approximately 28,310 residential mortgage loans
was transferred to investors. Under the transaction, only
the credit risks related to the portion of the individual loans that exceed
the equivalent of 60% loan-to-appraised-value
are securitised. Consequently, due to the second lien nature
of the securitised mortgage loans, a lower than average recovery
rate is to be expected. At closing, the total portfolio amounted
to EUR 1,052 million (EUR 543.8 million current portfolio
balance) and had a weighted average loan-to-market-value
of 93.7 per cent.
The realised loss definition includes principal, accrued interest
(capped at 4%) and external enforcement costs. Losses will
be allocated in a reverse sequential order, first to the unrated
Threshold Amount. The portfolio is static and the credit linked
notes amortise sequentially, starting with the Class A+ Notes,
which rank pro-rata with the Senior Credit Default Swap.
The ratings address the ultimate payment of principal on or before final
legal maturity of the Notes.
For further information on this transaction and its performance,
please visit Moody's at www.moodys.com for our presale report
and performance overviews.
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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