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Rating Action:

Moody's downgrades operating lease ABS note of Euro Freight Car Finance S.A.

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) from Aa2(sf).

....EUR273.775M Series 2006-1 Note, Downgraded to Baa3 (sf); previously on June 27, 2006 Definitive Rating Assigned Aa2 (sf)

RATINGS RATIONALE

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 AAE.

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 six months.

OPERATIONAL RISKS

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 covered.

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%).

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London
Ning Loh
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Milan
Alex Cataldo
Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

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 operating lease ABS note of Euro Freight Car Finance S.A.
No Related Data.
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