Frankfurt am Main, November 28, 2012 -- Moody's Investors Service has today downgraded the Baa3(sf) ratings of
seven notes issued by three Italian ABS transactions, Cartesio S.r.l.
- Series 2003-1 (Cartesio 2003), Posillipo Finance
S.r.l (Posillipo) and D'Annunzio S.r.l.
(D'Annunzio), on increased counterparty risk related to Dexia
Crediop S.p.A. (Dexia Crediop, B2/ NP).
This rating action concludes the review initiated by Moody's on
26 April 2012 on Cartesio 2003. A full list of affected ratings
can be found towards the end of this press release.
RATINGS RATIONALE
"Today's rating action reflects the weakening credit quality of
the three transactions' swap counterparty, Dexia Crediop,
and the increased risk of payment disruptions should Dexia Crediop fail
to make payments or breach other obligations under the swap agreements,"
says Alix Faure, a Moody's Assistant Vice President and analyst
of the transaction ."While the transaction documents provide
for measures to reduce linkage to Dexia Crediop acting as swap counterparty,
these have not been fully implemented to date as no swap counterparty
replacement or guarantor has been appointed," adds Ms.
Faure.
Dexia Crediop has been acting as:
(1) one of the interest-rate and cross-currency swap counterparties
on notes 1, 2, 3 and 4 in Cartesio 2003 (hedging 12%
of the cross-currency risk exposure and 9% of the interest-rate
risk exposure over a weighted average life of approximately 16 years);
(2) one of the interest-rate risk swap counterparties in the note
issued by Posillipo (hedging one third of the interest-rate risk
exposure over a weighted average life of approximately 14 years);
and
(3) one of the interest-rate risk swap counterparties in the note
issued by D'Annunzio (hedging 22% of the interest-rate
risk exposure over a weighted average life of approximately 5 years).
Although Dexia Crediop is not a swap counterparty for note 5 in Cartesio
2003, all notes rank pari passu in the priority of payments.
Therefore, they would share losses resulting from any swap counterparty
default.
Exposure to cross-currency or interest-rate swaps over a
long time horizon creates high rating linkage between the transaction
rating and the swap counterparty, as both cross-currency
and interest-rate risk can significantly increase the loss severity
incurred by noteholders in a situation of swap counterparty default.
The absence of liquidity mechanisms and lack of credit enhancement in
Cartesio 2003, Posillipo and D'Annunzio also increased the
linkage between the rating of the notes and the rating of Dexia Crediop.
Currently, Dexia Crediop follows its obligation to post collateral
in the account banks of each transaction (Deutsche Bank AG, London
Branch (A2/(P)P-1) for Cartesio 2003; Citibank N.A.
(A3/P-2) for Posillipo and BNP Paribas (A2/P-1) for D'Annunzio).
However, Dexia Crediop has not been replaced or guaranteed as contemplated
in the swap documentation of the three transactions.
In its analysis, Moody's has therefore added the losses incurred
by the transactions in the event that Dexia Crediop defaults under the
swap agreements to the assets' expected loss (assumed to equal the
expected loss of the Baa3-rated Italian regions that the underlying
loans are exposed to). Moody's differentiated the loss depending
on the swap type (interest-rate or cross-currency) and the
time horizon of exposure.
To a lesser extent, the downgrade of the notes also reflects the
increased risk of additional losses that could arise either from other
swap counterparties default or from swap termination costs in a situation
where the issuers themselves defaulted. If the regions failed to
pay the amount due under the health care receivables in a timely manner,
the issuers could then default - following a domino effect -
on their obligations under the swap agreements. As the structure
in the transactions do not benefit from credit enhancement and given the
current market conditions, the termination costs payable by the
special purpose vehicles (SPVs) to the swap counterparties could represent
significant losses to the transactions. This risk has increased
following the rating downgrade of the Italian regions. See "Moody's
downgrades Italian sub-sovereign ratings following sovereign downgrade",
16 July 2012 (http://www.moodys.com/research/Moodys-downgrades-Italian-sub-sovereign-ratings-following-sovereign-downgrade--PR_250041).
Moody's has conducted limited cash flow analysis, as the ratings
of the notes issued by the three transactions are predominantly linked
to the ratings of the different Italian regions in which assets are located
(i.e., the Region of Lazio (Baa3) for Cartesio 2003,
the Region of Campania (Baa3) for Posillipo and the Region of Abruzzo
(Baa3) for D'Annunzio). Moody's stress scenarios include
the failure of any counterparty to perform on its obligation, resulting
in losses to the transactions irrespective of the performance of their
collateral.
PRINCIPAL METHODOLOGY
Moody's methodology for rating these transactions considers a full linkage
to the rating of the regions in which they are located (i.e.,
Lazio, Campania and Abruzzo), as (1) the assets are unsecured,
direct obligations of the Italian regions; and (2) the rated securities
do not benefit from credit enhancement or liquidity support.
Other factors used in this rating are described in "Framework for De-Linking
Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions,"
published in October 2010.
LIST OF AFFECTED RATINGS
Issuer: Cartesio S.r.l. - Series 2003-1
....EUR200M Tranche 1 Bond, Downgraded
to Ba2 (sf); previously on Jul 20, 2012 Downgraded to Baa3
(sf) and Remained On Review for Possible Downgrade
....EUR200M Tranche 2 Bond, Downgraded
to Ba2 (sf); previously on Jul 20, 2012 Downgraded to Baa3
(sf) and Remained On Review for Possible Downgrade
....US$450M Tranche 3 Bond, Downgraded
to Ba2 (sf); previously on Jul 20, 2012 Downgraded to Baa3
(sf) and Remained On Review for Possible Downgrade
....GBP200M Tranche 4 Bond, Downgraded
to Ba2 (sf); previously on Jul 20, 2012 Downgraded to Baa3
(sf) and Remained On Review for Possible Downgrade
....EUR141M Tranche 5 Bond, Downgraded
to Ba2 (sf); previously on Jul 20, 2012 Downgraded to Baa3
(sf) and Remained On Review for Possible Downgrade
Issuer: D'Annunzio S.r.l.
....EUR327M A Notes, Downgraded to Ba1
(sf); previously on Jul 20, 2012 Downgraded to Baa3 (sf)
Issuer: POSILLIPO FINANCE S.R.L.
....EUR453M Series 2007-1 Asset-Backed
Floating Rate Notes due 2035 Certificate, Downgraded to Ba2 (sf);
previously on Jul 20, 2012 Downgraded to 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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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 these transactions in the past
six months.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it uses
in assigning the ratings 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 entities or their 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.
Yuezhen?Wang
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Gintz
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Alix Faure
AVP-Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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 seven Italian ABS notes in three transactions
