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Rating Action:

Moody's downgrades notes in three Italian leasing ABS transactions originated by Locat

28 Oct 2010

Approximately EUR2,202 million of securitised debt affected

Frankfurt am Main, October 28, 2010 -- Moody's Investors Service has today downgraded the long-term credit ratings of seven classes of notes and confirmed the rating of one class of notes, issued by Locat Series 2006, Locat Series 2008, and Locat Securitisation Vehicle 3 ("Locat SV Series - 2005) S.r.l. These rating actions conclude the review for possible downgrade (initiated in May 2010) of some of the notes in all three transactions.

The rating actions in each transaction are:

Issuer: Locat SV - Series 2005 (formerly named "Locat Securitisation Vehicle 3 S.r.l.")

....EUR160 million class B notes, downgraded to Baa1 (sf); previously on May 10, 2010 A2 (sf) placed under review for possible downgrade

....EUR33 million class C notes, downgraded to B2 (sf); previously on May 10, 2010 Baa3 (sf) placed under review for possible downgrade

Issuer: Locat SV - Series 2006

....EUR1348 million class A2 certificate, confirmed at Aa2 (sf); previously on May 10, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

....EUR152 million class B certificate, downgraded to Baa3 (sf); previously on May 10, 2010 A3 (sf) placed under review for possible downgrade

....EUR64 million class C certificate, downgraded to Caa1 (sf); previously on May 10, 2010 Ba2 (sf) placed under review for possible downgrade

Issuer: Locat SV - Series 2008

....EUR1591 million class A2 notes, downgraded to Aa3 (sf); previously on May 10, 2010 Aaa (sf) placed under review for possible downgrade

....EUR141 million class B notes, downgraded to Baa3 (sf); previously on May 10, 2010 Aa3 (sf) placed under review for possible downgrade

....EUR61 million class C notes, downgraded to B3 (sf); previously on May 10, 2010 A3 (sf) placed under review for possible downgrade

RATINGS RATIONALE

Today's rating actions are prompted by each transaction's worse-than-expected performance. In particular, cumulative default levels across each transaction are worse than expected at closing (or at previous reviews) compared with the pool factors and amortisation rates of the portfolios. In its analysis, Moody's considered the negative outlook on the Italian leasing ABS sector (see the report "EMEA ABS, CMBS & RMBS Asset Performance Outlooks", published in July 2010). Specifically, Moody's considered the forecasts for the main macro-economic drivers of the collateral deterioration, in particular, corporate insolvencies and GDP contraction.

Corporate insolvencies rose 20% in 2008 compared with 2007, and increased 35%-40% in 2009 compared with 2008. According to credit management solutions company Euler-Hermes, business insolvencies are likely to increase by 15% in 2010. Italian GDP contracted unexpectedly in Q4 2009, following 0.6% quarter-on-quarter growth in Q3 2009, when Italy's economy emerged from five consecutive quarters of recession. Moody's outlook for Italy's economic growth is weak for 2010, but is forecast to accelerate in 2011, with exports as the key growth driver.

Moody's has reassessed its lifetime default expectation for each transaction, taking into account the collateral performance to date and the current macroeconomic environment in Italy All transactions have under-performed Moody's performance expectations that it assumed at closing, or in its last transaction reviews.

The portfolios of all three transactions comprise three pools of Italian financial leases originated by Locat S.p.A. for equipment, auto and real-estate leases. Due to the shorter amortisation profile of the equipment and auto portion, the pools are now mainly exposed to real estate.

Locat Series 2005

Cumulative defaults (as of the last reporting date in July) were 6.5% of the total securitised balance, compared with expected cumulative defaults of 2.8% over the lifetime of the transaction at closing in November 2008, which thereafter increased to 5.1% in May 2009. The mean default assumption was increased to 7.25% of the current portfolio outstanding balance, which translates into 8.4% of the total securitised balance. The volatility was increased to 48% compared with 44.5% at closing in November 2005. The split between the three sub-pools as of the last reporting date in September was: 10.6% equipment, 2.9% auto and 86.5% real estate.

Locat Series 2006

Cumulative defaults (as of the last reporting date in September) were 6.3% of the total securitised balance, which equals the June 2009 revised assumptions, when the initial mean default rate was increased to 6.3% from 2.9%. As a result of the approach described above, the mean default assumption was then revised at 8.8% of current pool balance, which translates into 9.2% of the total securitised balance. The volatility was adjusted to 50%, compared with 54% at closing in December 2006 and 47% in June 2009. The relatively high volatility in this transaction is because 20% of the outstanding amount relates to large real-estate exposures to only a small number of borrowers. The split between the three sub-pools as of the last reporting date in September was: 15.8% equipment, 8.3% auto and 75.9% real estate (including the large loan exposure).

Locat Series 2008

Cumulative defaults (as of the last reporting date in September) were 5.7% of the total securitised balance, compared with expected cumulative defaults of 3.1% over the lifetime of the transaction at closing in May 2008. The mean default assumption was reviewed at 11.2% of the current pool balance, which translates into 12.9% of the total securitised balance. The volatility was reduced to 42.5% compared with 49% at closing in May 2008. The split between the three sub-pools as of the last reporting date in September was: 29.3% equipment, 11.5% auto and 59.2% real estate.

Due to the nature of the underlying borrowers, Moody's aimed to complement its historical data analysis with a top-down approach (similar to a standard SME deal) to determine the expected mean default rate. However, due to limited information provided in the specific transaction poolcuts, this analysis could not be performed in details. Moody's notes that the revised default assumptions on the current balance (and over the transactions' remaining life) are commensurate with an average rating in the "B" range.

The recovery rate for all transactions has been adjusted to 35%, representing a decrease from the assumptions at closing (or at the last review) to reflect the lower recoveries experienced since closing. Additionally, Moody's considered the potential effect of originator insolvency on the recoveries in the transaction. If the originator were to become insolvent, the rating agency expects recoveries on defaulted lease contracts to be in the 10% range.

Moody's performed a stress test taking into account a possible deterioration in the credit quality of Unicredit Leasing to a level commensurate with a Baa1 rating. Moody's found that this degree of rating migration would have no effect on the rated notes.

The principal methodologies used in rating and monitoring the Notes were The Lognormal Approach applied to ABS Analysis, published in July 2000, Multi-Pool Financial Lease-Backed Transactions in Italy, published in June 2006, Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa, published in June 2006 and Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction, published in December 2008. Other methodologies and factors that may have been considered in the process of rating these Notes can also be found on Moody's website.

Moody's used its excel based cash-flow model Moody's ABSROM™ as part of its quantitative analysis of the transaction. Moody's ABSROM™ model enables users to model various features of a standard European ABS transaction -- including the specifics of the default distribution of the assets, their portfolio amortisation profile, yield, or recoveries and replenishments during the revolving period, as well as the specific priority of payments, triggers, swaps and reserve funds on the liability side of the ABS structure. Moody's ABSROM™ User Guide, available on Moody's website, covers the functionality of the model and provides a comprehensive index of the user inputs and outputs.

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.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Additional research, including the pre-sale report for this transaction and reports for prior transactions, are available at www.moodys.com. In addition Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck in "Structured Finance Quick Check" at www.moodys.com/SFQuickCheck

All leasing ABS products mentioned in this document are structured finance products. Therefore please consider all actual ratings of tranches mentioned in this document as bearing an (sf) indicator

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating 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.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Iris Thate
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
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Frankfurt am Main 60322
Germany

Moody's downgrades notes in three Italian leasing ABS transactions originated by Locat
No Related Data.
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