London, 27 April 2012 -- Moody's downgraded 12 notes out of 4 transactions issued by Sestante Finance
S.r.l.: Sestante Finance S.r.l
("Sestante 2003"), Sestante Finance S.r.l.
Series 2004 ("Sestante 2004"), Sestante Finance S.r.l.
Series 2005 ("Sestante 2005"), and Sestante Finance S.r.l.
Series 2006 ("Sestante 2006"). All affected ratings are listed
at the end of this press release.
The ratings of classes B and C1 notes in Sestante 2004 and of class C1
notes in Sestante 2005 were placed on review for downgrade in May 2011
due to weak performance. The rating of class B notes in Sestante
2005 were placed on review for downgrade in October 2011 due to insufficient
credit enhancement.
RATINGS RATIONALE
Today's downgrade takes into account the revision of collateral performance
assumptions and the amount of available credit enhancement supporting
the notes.
--- Key collateral assumptions revised
Sestante Finance transactions are performing worse than expected since
the latest reviews in December 2009 for Sestante 2004, 2005 and
2006 and in March 2011 for Sestante 2003.
The proportion of loans more than 90 days delinquent is high compared
to Italian RMBS index and it has increased further in the latest three
quarters. As of February 2012 loans more than 90 days delinquent
comprised 6.03% of the current pool balance in Sestante
2003, 5.38% in Sestante 2004, 6.68%
in Sestante 2005 and 8.12% in Sestante 2006 compared to
1.66% in Italian RMBS 90+ index.
Cumulative defaults as a percentage of the original pool balance reached
5.65% in Sestante 2003, 5.38% in Sestante
2004, 6.56% in Sestante 2005 and 9.20%
in Sestante 2006. Recovery flows as a percentage of cumulative
defaults have been very limited in all four transactions, at 15.86%
in Sestante 2003, 13.53% in Sestante 2004, 8.95%
in Sestante 2005 and 4.75% in Sestante 2006 as of the latest
data point available. Moody's notes that the recovery amounts
increased in the last two quarters.
After considering the current amounts of cumulative defaults and completing
a roll rate and recovery rate analysis for the portfolio Moody's has increased
its lifetime expected loss assumption as percentage of the original pool
balance from 3.5% to 4.3% in Sestante 2003,
from 3.7% to 5.0% in Sestante 2004,
from 3.9% to 5.2% in Sestante 2005 and from
6.4% to 9.2% in Sestante 2006.
During the review Moody's has re-assessed updated loan-by-loan
information and increased its MILAN CE assumption to 20% in Sestante
2003, 2004 and 2005, and to 30% in Sestante 2006.
This is within the top range of Italian RMBS transactions due to pool
performance and composition, in particular (i) high share of broker
originated mortgages, (ii) high share of foreign nationals,
and (iii) high loan to value ratios.
--- Decreasing levels of credit enhancement
Increased defaults and limited recoveries flows led to decreased levels
of credit enhancement available in Sestante Finance transactions.
In Sestante 2003 class A2 notes are not backed by mortgages and are repaid
according to a fixed amortisation profile with excess spread trapped in
the interest waterfall in priority to interest payments on classes B and
C notes. Since December 2010 excess spread was insufficient to
pay balance in the principal deficiency ledger ("PDL") and
the reserve fund was utilized on each interest payment date to cover the
shortfalls. The reserve fund is drawn to 59% of the target
level as of February 2012.
In Sestante 2004, 2005 and 2006 class C2 notes are not backed by
mortgages and are repaid by excess spread after payment of PDL balances
but before reserve fund replenishment. The unpaid PDL balance as
a percentage of outstanding principal of the classes A, B and C1
is 1.61% in Sestante 2004, 2.82% in
Sestante 2005 and 7.10% in Sestante 2006. Class C2
notes have defaulted on the scheduled principal payments in 2009 and since
were unable to pay the scheduled principal in full.
--- Counterparty Risk
Moody's notes that in May 2011 Meliorbanca S.p.A.
(NR) has transferred servicing function for the Sestante transactions
to Italfondiario S.p.A. (NR). Italfondiario
is one of the largest specialist servicers in Italy. It is 88.75%
owned by entities of the Fortress group and 11.25% by Intesa
Sanpaolo. Banca Popolare dell'Emilia Romagna (NR) acts as
a back-up servicer and The Bank of New York Mellon (Aa1/P-1)
acts as a cash manager in all four deals. Moody's considers
this level of counterparty risk as commensurate for a Aa2(sf) rating in
Sestante transactions.
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.
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".
Following the downgrade of Italy's long-term government bond
rating to A3, Moody's lowered the maximum achievable ratings
in Italy from Aaa(sf) to Aa2(sf). Furthermore, as discussed
in Moody's special report "Rating Euro Area Governments Through Extraordinary
Times -- An Updated Summary," published in October
2011, Moody's is considering reintroducing individual country ceilings
for some or all euro area members, which could affect further the
maximum structured finance rating achievable in those countries.
Moody's is also continuing to consider the impact of the deterioration
of sovereigns' financial condition and the resultant asset portfolio deterioration
on mezzanine and junior tranches of structured finance transactions.
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: SESTANTE FINANCE S.r.l.
....EUR13.36M C Notes, Downgraded
to Ba2 (sf); previously on Mar 21, 2011 Downgraded to Baa2
(sf)
Issuer: Sestante Finance Srl Series 2004
....EUR575.3M A Notes, Downgraded
to Aa3 (sf); previously on Feb 21, 2012 Downgraded to Aa2 (sf)
....EUR34.4M B Notes, Downgraded
to Ba2 (sf); previously on May 20, 2011 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR15.6M C1 Notes, Downgraded
to Caa2 (sf); previously on May 20, 2011 Ba1 (sf) Placed Under
Review for Possible Downgrade
....EUR21.9M C2 Notes, Downgraded
to Ca (sf); previously on May 20, 2011 Ba3 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance Srl - Series 2005
....EUR791.9M A Notes, Downgraded
to A3 (sf); previously on Feb 21, 2012 Downgraded to Aa2 (sf)
....EUR47.35M B Notes, Downgraded
to B3 (sf); previously on Oct 20, 2011 A2 (sf) Placed Under
Review for Possible Downgrade
....EUR21.5M C1 Notes, Downgraded
to Ca (sf); previously on May 20, 2011 Ba3 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance S.r.L. Series 2006
....EUR342.25M A1 Notes, Downgraded
to Ba1 (sf); previously on Dec 18, 2009 Downgraded to Aa2 (sf)
....EUR228.17M A2 Notes, Downgraded
to Ba1 (sf); previously on Dec 18, 2009 Downgraded to Aa2 (sf)
....EUR34.1M B Notes, Downgraded
to Ca (sf); previously on Dec 18, 2009 Downgraded to Baa3 (sf)
....EUR15.5M C1 Notes, Downgraded
to C (sf); previously on Dec 18, 2009 Downgraded to Caa1 (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.
Lyudmila Udot
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 several Italian RMBS notes issued by Sestante Finance
