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11 Sep 2009
Approximately EUR 56.2 million of debt securities affected.
Johannesburg, September 11, 2009 -- Moody's Investors Service has today taken the following rating action
on notes issued by Magellan Mortgages No.3 Plc:
- Class A, affirmed at Aaa, previously on 1 July 2005
- Class B, downgraded to A2; previously on 1 July 2005
- Class C, downgraded to Baa2; previously on 1 July
2005 assigned A2;
- Class D, downgraded to Ba3; previously on 1 July 2005
Today's rating actions was prompted by the worse-than-expected
collateral performance and takes into account the increased loss expectations
for the mortgage portfolio.
As of the August 2009 payment date 7.08% of current portfolio
balance (CB) was reported to be delinquent. The 90 to 365 day delinquencies
are currently 2.72% of CB while the outstanding defaults
(arrears greater than 365 days) have increased to 1.79%
of original balance. Given the very long foreclosure process in
Portugal no mortgage loan has been foreclosed and no losses have yet been
realized. The transaction benefits from a provisioning mechanism
linked to defaulted mortgage loans (arrears greater than 365 days).
The provisioning gradually increases from 25% to 100% of
the loan amount as the mortgage loan in arrears approaches 3 years.
However, due to the high level of defaults, the structure
has since February 2009 had insufficient excess spread to fully provide
for the calculated loss provision. This has resulted in a Class
D principal deficiency ledger (PDL) since February 2009 which has increased
to 0.32% of current balance as at August 2009. The
reserve fund can be used to cover for principal losses only at the end
of the transaction life. This explains why the reserve fund is
currently fully funded at 1.71% of the current note balance
and yet there is a class D PDL. The reserve fund is however available
to cover for liquidity shortfall during the life of the deal.
All classes of notes are currently redeeming on a pro-rata basis
switching to sequential pay upon certain trigger breach, which have
so far not been breached. This has lead to very little build up
of credit enhancement under the senior notes since close. Moody's
has taken into account that should arrears worsen, the delinquency
trigger (delinquencies between 90 days and 365 days exceeds 1.80%
of in the initial pool balance) is likely to be hit in the future,
leading to a switch to a sequential payment of the notes. Currently
the actual 90 to 365 day delinquencies is equal to 1.44%.
Moody's also considered set-off risk in its analysis. Based
on data available for the Portuguese market, Moody's made assumptions
on the amount of deposits that debtors in this transactions had when mortgage
loans were assigned to the issuer at closing. Using the originators
rating (Banco Comercial Portugues S.A; Aa3/P-1) in
its cash flow analysis, Moody's has assessed the impact of set-off
on the notes if the originator became insolvent at different time horizons.
Furthermore, the Portuguese government in 2007 introduced a cap
of 0.5% in the pre-payment penalty to floating mortgages
loans which can be applied to borrowers who pay more than their scheduled
monthly installments. Moody's has therefore reduced the benefit
initially assumed in its cash flow modelling for pre-payment penalty.
Moody's has assessed updated loan-by-loan information of
the outstanding portfolios to determine the increase in credit support
needed and the volatility of future losses. As a consequence,
Moody's has revised its Milan Aaa CE from a range of 6.1%
to 6.5% at closing to 8.0%. The current
level of credit enhancement under the A notes is 8.52% (includes
note subordination, reserve fund and PDL). Taking into account
the current amount of realized losses, and completing a roll-rate
and severity analysis for the non-defaulted portion of the portfolio,
Moody's has also increased its loss expectations from a range of 0.65%
and 1.05% to 2.0% of original balance.
The loss expectation and the Milan Aaa CE are the two key parameters used
by Moody's to calibrate the loss distribution curve, which is one
of the inputs into our RMBS cash-flow model. Moody's has
also factored into its analysis the negative sector outlook for Portugal
RMBS. The sector outlook reflects the following expectations of
key macro-economic indicators: GDP, unemployment,
house prices and personal insolvencies. For more detailed information
please refer to the Portuguese RMBS Q2 2009 Indices report.
Magellan Mortgages No 3 closed in June 2005 and the current pool factor
is approximately 53%. The assets supporting the notes are
prime mortgage loans secured by residential properties located in Portugal
and have been originated and are currently serviced by Banco Comercial
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transactions. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors. There has been no rating action on any notes
issued by Magellan Mortgages No.3 Plc since the initial rating
Moody's will continue to monitor closely the above transactions.
The principal methodology used in rating Magellan Mortgages No 3 was "Moody's
Approach to Rating Portuguese RMBS", published in October
2004 and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS
Transaction" published in December 2008 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
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.
For further information, please visit our website www.moodys.com
or contact Moody's Client Service Desk (+44 20) 7772 5454.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades ratings of notes isued by Magellan Mortgages No.3 Plc
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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