London, 26 March 2012 -- Moody's Investors Service has today downgraded the ratings of Irish RMBS
notes issued by Emerald Mortgages No. 4 plc (Emerald 4) and Kildare
Securities limited (Kildare). The affected ratings are listed at
the end of this press release.
All the ratings in Emerald 4 and the ratings of classes C and D in Kildare
were placed on review for possible downgrade on 7 December 2011 due to
weak and deteriorating performance.
RATINGS RATIONALE
Today's rating action takes into account (i) the continued rapid deterioration
in performance of the transactions; (ii) Moody's outlook for Irish
RMBS sector; and (iii) credit quality of key parties to the transaction
as well as structural features in place such as amount of available credit
enhancement.
Key collateral assumptions revised
Emerald 4 and Kildare are performing worse than Moody's expectations as
of the latest review in July 2011. As of February 2012, loans
more than 90 days in arrears have increased to 8.3% of current
balance in Emerald 4 and 5.9% in Kildare, which constitutes
an approximately 40% and 35% increase, respectively,
compared to the levels as of June 2011. Cumulative losses realized
since closing remain very low at 0.03% of original pool
balance in Emerald 4 and 0.05% in Kildare. Moody's
notes that loss realization is slow for Irish RMBS given lengthy enforcement
procedures in Ireland and moratorium imposed. For this reason,
Moody's considers loans with delinquencies exceeding 360 days as a proxy
for defaults. As of February 2012, the 360+ delinquencies
in the transactions have increased by 40% to 50% compared
to June 2011, reaching 3.5% of the current pool balance
in Emerald 4 and 2.7% in Kildare.
Moody's expects that the increasing unemployment and lower income arising
from the austerity measures will continue to hurt borrower's ability to
fulfil their financial obligations. In addition to high arrears
the loss severity will also be high as a result of the oversupply of housing,
lack of refinancing and further decline in house prices, expected
to be equal to approximately 60% decline from peak to trough in
the base case. Approximately 63% of the portfolio in Emerald
4 and 56% in Kildare is currently in negative equity. As
a result Moody's has increased the portfolio expected loss assumptions
in December 2011 to 5.5% of current pool balance for Emerald
4 and 5% for Kildare, corresponding to 3.4%
of original pool balance for Emerald 4 and 2.8% on original
balance for Kildare.
During the review Moody's has re-assessed updated loan-by-loan
information and increased its MILAN CE assumption to 22% in Emerald
4 and maintained its MILAN CE assumption at 20% for Kidlare.
Class A2 and A3 notes in Kildare are paying sequentially switching to
pro-rata payment only in case of enforcement. The ratings
of these notes take into account their relative position in the waterfall
as well as the probability of a missed interest payment triggering a swith
to a pro-rata repayment.
Factors and Sensitivity Analysis
Expected loss assumptions remain subject to uncertainty with regard to
general economic activity, interest rates and house prices.
Lower than assumed realised recovery rates or higher than assumed default
rates would negatively affect the ratings in these transactions.
The new Irish personal insolvency legislation proposed in January could
also have a negative impact on the ratings of the notes as it might lead
to a write-down of the mortgage debt supporting the notes (see
Moody's special report Proposed Irish Legislation Opens the Door
To Widespread Debt Forgiveness published in February 2012).
As the euro area crisis continues the ratings of the 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 negatively
impact the ratings of the notes. For more information please refer
to the Rating Implementation Guidance published on 13 February 2012 "How
Sovereign Credit Quality May Affect Other Ratings" and the special
comment published on 19 January 2012 "Why Global Bank Ratings Are
Likely to Decline in 2012".
The principal methodology used in these ratings was Moody's Approach to
Rating RMBS in Europe, Middle East, and Africa published in
October 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
In reviewing these transactions, Moody's used ABSROM to model the
cash flows and 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, the corresponding
loss for each class of notes is calculated 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 (i) the probability of occurrence of each default scenario; and
(ii) 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.
The list of affected ratings:
Issuer: Emerald Mortgages No. 4 p.l.c.
....EUR1428M A Notes, Downgraded to
Ba2 (sf); previously on Dec 7, 2011 Baa1 (sf) Placed Under
Review for Possible Downgrade
....EUR34.5M B Notes, Downgraded
to Caa3 (sf); previously on Dec 7, 2011 B1 (sf) Placed Under
Review for Possible Downgrade
....EUR37.5M C Notes, Downgraded
to Ca (sf); previously on Dec 7, 2011 Caa3 (sf) Placed Under
Review for Possible Downgrade
Issuer: Kildare Securities limited
....US$1451.6M A2 Notes,
Downgraded to Baa3 (sf); previously on Jul 21, 2011 Downgraded
to Baa1 (sf)
....EUR1062M A3 Notes, Downgraded to
Baa3 (sf); previously on Jul 21, 2011 Downgraded to Baa1 (sf)
....EUR96.8M B Notes, Downgraded
to B1 (sf); previously on Mar 10, 2011 Downgraded to Baa3 (sf)
....EUR90.6M C Notes, Downgraded
to Caa2 (sf); previously on Dec 7, 2011 B2 (sf) Placed Under
Review for Possible Downgrade
....EUR26.55M D Notes, Downgraded
to Ca (sf); previously on Dec 7, 2011 Caa1 (sf) Placed Under
Review for Possible Downgrade
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 considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
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
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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.
Maria Divid
Associate 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
VP - Senior Credit Officer
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 ratings of Irish RMBS issued by Emerald 4 and Kildare
