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Rating Action:

Moody's downgrades notes issued by Atlante Finance Srl

21 Jul 2011

Frankfurt am Main, July 21, 2011 -- Moody's Investors Service has today downgraded the class A, B and C notes issued by Atlante Finance Srl. A detailed list of ratings affected by this action is at the end of the press release.

RATINGS RATIONALE

Today's rating action reflects: (i) deterioration in the performance of the underlying collateral portfolio, in particular the commercial portion of the portfolio; (ii) increased concentration among top borrowers, most of which have exposure to commercial real estate; and (iii) the reduction in credit enhancement due to poor performance. The rating action also concludes the rating review of the transaction, following the implementation on 2 March 2011 of Moody's rating guidance entitled "Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk."

--OPERATIONAL RISK

Moody's placed the senior and mezzanine notes of the transaction on downgrade review because of the lack of a back-up servicer facilitator while the servicer Unipol Banca is rated Baa2/P-2/D+/Negative. Moody's believes that the current structure is now consistent with the ratings of the class A and B notes, following their downgrade to Aa1(sf) and A1(sf), respectively.

--COLLATERAL PERFORMANCE

Atlante Finance Srl is a repackaging of Grecale ABS Srl, a securitisation transaction closed in May 2006 which purchased a mixed-pool portfolio of mortgage loans made to Italian commercial, residential and public sector borrowers. Following a sharp rise in defaults over the past 18 months, the cumulative default rate now stands at 10.5% of the original portfolio balance, compared with 4.4% at year-end 2009. Commercial borrowers in particular have contributed to the sharp increase in defaults, with the cumulative default rate reaching approximately 13.7% over the original commercial pool balance as at the end of March 2011. Residential borrowers also showed weaker performance compared to the Italian RMBS index. The residential borrower cumulative default rate in March 2011 stood at 5.4%, while the Italian RMBS index rate was 2.0% in February 2011. The performance of the public sector loan portfolio has been in line with expectations as no default has occurred since closing.

Cumulative recoveries measured as a percentage of cumulative defaults, stood at 23% as at March 2011. All defaulted loans are backed by mortgages either commercial or residential properties. Moody's believes that the low recovery rate can be attributed to the extended period of time it takes to fully recover a defaulted loan in the Italian market. This time to full recovery can typically be anywhere up to six years.

--BORROWER CONCENTRATION

The top borrower of the underlying collateral contributes 6.8% to the outstanding portfolio. The top five borrowers reach 20.0% and the top 10 borrowers reach 30.0% levels. This compares with 4.4% for the top borrower, 17.6% for the top five borrowers and 26.0% for the top 10 borrowers in the initial portfolio. In addition, the majority of the top borrowers are active in the building and construction sector. Moody's considers this sector to be riskier relative to other industries. Moody's assumed a stressed default probability equivalent to Caa2 rating on these large exposures.

--CREDIT ENHANCEMENT

Credit enhancement in this transaction increased for the class A and B notes to 33.0% and 28.0%, respectively, from the original 16.5% and 14.5%. For class C, credit enhancement dropped to 2.0% from the original 5.0%. In the case of Atlante Finance, Moody's calculated the current credit enhancement as being the available subordination adjusted for the performing pool balance and the under-collateralisation caused by the unpaid principal deficiency ledger (PDL). As of March 2011, the unpaid PDL stood at EUR82.8 million, or 13.8% of the outstanding note balance.

--KEY REVISED ASSUMPTIONS: CUMULATIVE DEFAULT, VOLATILITY AND RECOVERY RATE

Moody's has increased its lifetime default expectation for the Atlante Finance collateral portfolio, factoring in: (i) the poor collateral performance to date; and (ii) any likely performance deterioration of the pool in the current cycle. In doing so, Moody's took into account the transactions' exposure to the real estate sector, either through security in the form of a mortgage or debtors operating in real estate.

Given the three different types of borrower and the negative outlook on these sectors, Moody's has maintained its default probability assumption in the low-single-B range for commercial debtors; the Ba-range for residential borrowers; and the Baa-range for public sector borrowers. Moody's currently estimates the remaining weighted average life of the portfolio to be six years.

These revised assumptions have translated into a rise in the cumulative mean default assumption equal to 20.3% of the current portfolio balance (equivalent to the mid B rating category). This assumption on future defaults implies a revised cumulative mean default calculation for the entire life of the transaction of 17.6% of the original portfolio balance (13.7% at closing in 2006).

The low granularity of the portfolio together with the concentration in the building and real estate sector led Moody's to use a Monte Carlo simulation to derive the gross default distribution. Furthermore, Moody's could not allocate approximately 44.6% of the borrowers (the majority being residential borrowers) to a specific industry based on Moody's Industry Allocation using NACE Rev 1.1. Moody's took this into consideration by allocating these borrowers into one single industry, therefore increasing the stress of the transaction's volatility. The Monte Carlo simulation resulted in a coefficient of variation of 52%.

Moody's reduced its recovery rate assumption to 60% from 81% at closing. The standard deviation to model stochastic recoveries was determined at 20%. Moody's further increased the correlation between defaults and severity to better capture the fact that some of the securities are commercial real estate properties with more volatile market prices compared to residential property. Moody's also assumed an additional recovery rate of 40% for loans already defaulted which are part of the unpaid PDL.

Moody's assumes a constant prepayment rate (CPR) of 10%.

--SENSITIVITIES TO CONCENTRATION RISK

Given the portfolio concentration in terms of borrower size, Moody's also analysed the impact of a sudden default of the performing portfolios' top exposures. The defaults of the top exposures would lead to: (ii) an significant increase in the unpaid PDL; (ii) an increase of the average pool quality; and (iii) a reduction of the credit enhancement. In the following analysis Moody's tested the impact of different recovery rates ranging between 40% to 60% on defaulted loans in the unpaid PDL. For instance, the quantitative/model-indicated rating outcome of the class A notes was between Aa2(sf) and Aaa(sf), of the class B notes between Baa1(sf) and Aa2(sf) and of class C notes between Ca(sf) and Caa2(sf).

TRANSACTION DETAILS

Atlante Finance Srl is a repackaging of Grecale ABS Srl, which purchased a portfolio of loans to commercial, residential and public sector borrowers in May 2006 with the majority of the loans being originated by Unipol Banca (Baa2/P-2/D+/Negative). In March 2011, the performing portfolio consisted of 4,228 loans to 4,069 borrowers. The weight of the sub-portfolios has changed to 55% from 63% for commercial borrowers, to 41% from 34% for residential borrowers and to 4% from 3% for public sector borrowers. Most of the loans were originated between 1986 and 2006. The weighted average remaining term of the portfolio is 12.1 years. The concentration of the loans in the building and real estate sector according to Moody's industry classification was 32.9% as of March 2011.

Moody's initially used its CMBS methodology to analyse the collateral portfolio of Atlante Finance Srl. Given the heterogeneity of the underlying sub-portfolios and with the majority of the borrowers being small and medium-sized Italian companies, Moody's used Moody's approach to Rating CDOs of SMEs in Europe, published in February 2007 as principal methodology in this rating action.

Moody's ratings address the expected loss posed to investors by the legal final maturity of the notes. The rating agency's ratings address only the credit risks associated with the transaction. Moody's has not addressed non-credit risks, which may have a significant effect on yield to investors.

List of ratings affected:

Issuer: Atlante Finance Srl

....EUR1202.5M A Certificate, Downgraded to Aa1 (sf); previously on Mar 2, 2011 Aaa (sf) Placed Under Review for Possible Downgrade

....EUR28.8M B Certificate, Downgraded to A1 (sf); previously on Mar 2, 2011 Aa3 (sf) Placed Under Review for Possible Downgrade

....EUR136.8M C Certificate, Downgraded to B3 (sf); previously on May 30, 2006 Definitive Rating Assigned Baa3 (sf)

REGULATORY DISCLOSURES

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating 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 this transaction in the past six months.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

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 on our website www.moodys.com for further information.

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.

Frankfurt am Main
Sebastian Hoepfner
Associate 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
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades notes issued by Atlante Finance Srl
No Related Data.
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