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Global Credit Research - 23 Mar 2011
EUR 273.775 Million of debt securities affected
London, 23 March 2011 -- Moody's Investors Service has today downgraded the rating of notes issued
by Euro Freight Car Finance S.A. (the "Issuer") to Baa3(sf)
....EUR273.775M Series 2006-1
Note, Downgraded to Baa3 (sf); previously on June 27,
2006 Definitive Rating Assigned Aa2 (sf)
The downgrade of the notes was mainly prompted by Moody's view that
the credit quality of the Ahaus Alstätter Eisenbahn ("AAE")
group, who acts as originator and servicer in the transaction,
has deteriorated in the current environment when compared to closing of
the transaction. This operating lease transaction represents financing
for a significant portion of AAE's stock of railcars and therefore
we consider this to be a transaction exposed to the business risks of
Moody's has also updated its view on the insolvency scenario of
AAE, including the possibility of liquidation following default,
which, if it occurred, would expose this transaction to its
greatest risk of loss. We believe the Notes are correlated to the
ability of AAE AG, as servicer, to lease and re-lease
the railcars to existing and new customers during the life of the transaction.
The transaction provides financing to AAE secured on the railcars owned
by two subsidiaries within the AAE group. Receivables arising from
leases of these railcars provide the primary source of funds to allow
the Issuer to repay the notes.
Due to the short tenure of the leases (which in general are less than
two years), the structure envisions that the Issuer must rely on
receivables arising from both existing and future leases during the life
of the transaction in order for the notes to be fully repaid. Although
the transaction benefits from several features, including the experience
and skill of AAE as the servicer and the overall credit strength and diversity
of the lessee base, Moody's believes that the rating of the
notes is correlated to the ability of AAE AG, as servicer,
to lease and re-lease the railcars to existing and new customers
during the life of the transaction. To the extent the leases do
not provide sufficient cashflow to repay the notes and security is enforced
over the railcars, the transaction is also exposed to the market
value of the railcars for recoveries.
In its rating approach, Moody's considered that the greatest
risk of loss to the transaction will arise in the situation where AAE
is no longer able to continue leasing the railcars, most likely
following the default of AAE. In this scenario, the Issuer
will enforce on its security over the railcars and would likely sell the
railcars, exposing the transaction to market value risk.
Whilst Moody's believes that a default of AAE would likely result
in some combination of asset sales and business reorganisation,
the risk of a liquidation scenario leading to a cessation of AAE's
business in leasing railcars cannot be ruled out. Moody's
believes that the Baa3(sf) rating on the notes is commensurate to the
likelihood of this liquidation scenario of AAE and potential consequences
for the noteholders.
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
Moody's has also assessed the risk of a disruption in the performance
of AAE AG as the servicer for this transaction, taking into account
the fact that transaction benefits from HSH Nordbank AG as the back-up
servicer facilitator at closing to facilitate the replacement of AAE AG
as servicer in the event of a servicer termination event. Moody's
believes that the role of the servicer in this transaction is greater
than other similar transactions because the Issuer relies on the servicer
not only to service existing leases including providing maintenance services,
but also to lease railcars out on new leases when the existing ones expire
and, where necessary, to sell the relevant railcars,
in order to repay the notes.
Hence, given Moody's view of the deterioration of the credit
quality of the AAE group since closing of the transaction, Moody's
believes that the operational risk in the transaction is commensurate
with the Baa3(sf) rating on the notes.
The transaction benefits from liquidity of up to EUR12million available
to cover payments due on the Class A notes. In addition,
a revision and wheelset facility of up to EUR18million is available until
2018 to allow for servicing and maintenance costs of the railcars to be
The Issuer, Railcar and Freightcar are registered in Luxembourg
and are subsidiaries of AAE Cargo. AAE Cargo is registered in Switzerland
and is a subsidiary of AAE Ahaus Alstaetter Eisenbahn Holding AG,
also based in Switzerland.
Moody's performed a servicer review at AAE's premises in May 2010
as part of its monitoring process of the transaction.
As of 31 December 2010, the notes balance is EUR 219.5 million.
The principal amount of the notes is amortising under a scheduled amortisation
pattern over a 18 year period. The notes have amortised as expected
since closing in 2006.
The transaction has performed as expected with all of the triggers,
including those linked country concentrations, fleet utilisation
rates or debt-service coverage ratios, being currently satisfied.
In particular, the fleet utilisation rate in the quarter ending
31 December 2010 was 92% and significantly above the trigger level
of 80%, whereas the 18-month average was 93%
(compared to the trigger level of 85%).
The rating has been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
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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
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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
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The date on which some Credit Ratings were first released goes back to
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Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Moody's Investors Service Ltd.
Moody's downgrades operating lease ABS note of Euro Freight Car Finance S.A.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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