London, 25 June 2013 -- Moody's Investors Service has today downgraded the ratings of five mezzanine
and junior notes in three Italian residential mortgage-backed securities
(RMBS) transactions: Siena Mortgages 07-5 S.p.A;
Siena Mortgages 07-5, Series 2; and Siena Mortgages
09-6 Series 2 S.r.l. Insufficiency of credit
enhancement to address sovereign risk and counterparty exposure have prompted
today's action.
Today's rating action concludes the review of three notes placed on review
on 13 March 2013, due to potentially insufficient credit enhancement
to maintain the rating 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).
This rating action also concludes the review of two notes placed on review
on 2 August 2012, following Moody's downgrade of Italian government
bond ratings to Baa2 from A3 on 13 July 2012.
For a detailed list of affected ratings, see towards the end of
the press release, before regulatory disclosures.
RATINGS RATIONALE
Today's rating action primarily reflects insufficiency of credit enhancement
to address sovereign risk and counterparty exposure in the case of Siena
Mortgages 07-5.
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/researchdocumentcontentpage.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.
Moody's has not revised the key collateral assumptions for any of the
deals. Expected loss assumptions as a percentage of original pool
balance remain at 1.97% for Siena Mortgages 07-5;
3.35% for Siena Mortgages 07-5, Series 2 and
2.90% for Siena Mortgages 09-6 Series 2. The
MILAN CE assumptions remain at 9.3% for Siena Mortgages
07-5; 14.1% for Siena Mortgages 07-5,
Series 2 and 13.6% for Siena Mortgages 09-6 Series
2.
-- Exposure to Counterparty
Moody's rating analysis also took into consideration the exposure to Banca
Monte dei Paschi di Siena S.p.A. acting as servicer
in the three transactions. On 9 May 2013 Banca Monte dei Paschi
di Siena S.p.A. was downgraded from Ba2/NP to B2/NP.
Moody's has been informed by the bank that they intend to appoint
a back-up servicer in each of the three transactions in the coming
months.
In addition, Moody's rating analysis takes into consideration
the set-off risk arising from exposure to Banca Monte dei Paschi
di Siena S.p.A. as originator in the three transactions.
The revised ratings in Siena Mortgages 07-5 S.p.A
were negatively affected by this exposure. Each of the three transactions
benefits from a commingling reserve which mitigates the risk of commingling
arising from exposure to Banca Monte dei Paschi di Siena S.p.A.
as collection account bank.
The conclusion of Moody's rating review also takes into consideration
the exposure to Banca Monte dei Paschi di Siena S.p.A.,
acting as swap counterparty for the three transactions. Moody's
notes that, following the breach of the second rating trigger,
all three swaps do not reflect Moody's de-linkage criteria.
The rating agency has assessed the probability and effect of a default
of the swap counterparties on the ability of the issuer to meet its obligations
under the transactions. Additionally, Moody's has examined
the effect of the loss of any benefit from the swap and any obligation
the issuer may have to make a termination payment. In conclusion,
these factors will not negatively affect the rating on the notes.
-- 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.
Moody's describes additional factors that may affect the ratings in "Approach
to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow
Transactions: Request for Comment" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772),
published on 2 July 2012.
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 its cash flow model,
ABSROM, to 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, Moody's calculates
the corresponding loss for each class of notes given the incoming cash
flows from the assets and the outgoing payments to third parties and noteholders.
Therefore, the expected loss for each tranche is the sum product
of (1) the probability of occurrence of each default scenario and (2)
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.
In the context of the rating review, the transactions have been
remodeled and some inputs have been adjusted to reflect the new approach
described above. In addition, the cashflow model inputs relating
to interest deferral triggers in Siena Mortgages 07-5 S.p.A
and Siena Mortgages 09-6 Series 2 have been corrected during the
review.
LIST OF AFFECTED RATINGS
Issuer: Siena Mortgages 07-5 S.p.A
....EUR157.45M B Notes, Downgraded
to Baa3 (sf); previously on Mar 13, 2013 A2 (sf) Placed Under
Review for Possible Downgrade
....EUR239M C Notes, Downgraded to B2
(sf); previously on Aug 2, 2012 Ba3 (sf) Placed Under Review
for Possible Downgrade
Issuer: Siena Mortgages 07-5, Series 2
....EUR108.3M B Notes, Downgraded
to Baa2 (sf); previously on Mar 13, 2013 A2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Siena Mortgages 09-6 Series 2 S.r.l.
....EUR447.1M B Notes, Downgraded
to Ba3 (sf); previously on Mar 13, 2013 Baa3 (sf) Placed Under
Review for Possible Downgrade
....EUR188.65M C Notes, Downgraded
to Caa1 (sf); previously on Aug 2, 2012 B3 (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.
Maria Divid
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
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 five notes in three Italian RMBS transactions
