Approximately EUR1.66 billion of debt securities affected
London, 29 April 2010 -- Moody's Investors Service has placed on review for possible downgrade
the ratings of 25 Notes issued by six collateralized debt obligation (CDO)
transactions backed by non-granular portfolios of German Small
and Medium Enterprise loans (SME CDOs).
Today's rating actions are as follows:
Issuer: European Private Funding I Limited Partnership (Preps 2004-1)
EUR220M (Currently EUR180.8M) Senior Notes, Baa1 Placed Under
Review for Possible Downgrade; previously on May 7, 2009 Downgraded
to Baa1
Issuer: PREPS 2005-1 Limited Partnership
EUR175M (Currently EUR145.7M) A1, Aa1 Placed Under Review
for Possible Downgrade; previously on Jun 17, 2009 Downgraded
to Aa1
EUR60M (Currently EUR49.9M) A2, Aa1 Placed Under Review for
Possible Downgrade; previously on Jun 17, 2009 Downgraded to
Aa1
EUR47M B, Ba1 Placed Under Review for Possible Downgrade; previously
on Jun 17, 2009 Downgraded to Ba1
Issuer: PREPS 2005-2 plc
EUR217M (Currently EUR189.2M) A1, A3 Placed Under Review
for Possible Downgrade; previously on May 7, 2009 Downgraded
to A3
EUR53M (Currently EUR46.2M) A2, A3 Placed Under Review for
Possible Downgrade; previously on May 7, 2009 Downgraded to
A3
EUR41.5M B1, Caa2 Placed Under Review for Possible Downgrade;
previously on May 7, 2009 Downgraded to Caa2
EUR12.5M B2, Caa2 Placed Under Review for Possible Downgrade;
previously on May 7, 2009 Downgraded to Caa2
Issuer: H.E.A.T Mezzanine S.A.
- Compartment 3 Notes
EUR233M (Currently EUR217.8M) A, A2 Placed Under Review for
Possible Downgrade; previously on Oct 15, 2009 Downgraded to
A2
EUR31M B, B2 Placed Under Review for Possible Downgrade; previously
on Oct 15, 2009 Downgraded to B2
EUR25.5M C, Caa3 Placed Under Review for Possible Downgrade;
previously on Oct 15, 2009 Downgraded to Caa3
Issuer: PULS CDO 2006-1 PLC
EUR39.1M (Currently EUR31.4M) A1, A1 Placed Under
Review for Possible Downgrade; previously on Jun 17, 2009 Downgraded
to A1
EUR24M A2B, Baa1 Placed Under Review for Possible Downgrade;
previously on Jun 17, 2009 Downgraded to Baa1
EUR26.5M B, Ba3 Placed Under Review for Possible Downgrade;
previously on Jun 17, 2009 Downgraded to Ba3
EUR21.1M C1, Caa1 Placed Under Review for Possible Downgrade;
previously on Jun 17, 2009 Downgraded to Caa1
EUR5.7M C2, Caa3 Placed Under Review for Possible Downgrade;
previously on Jun 17, 2009 Downgraded to Caa3
EUR14.6M (Currently EUR15.2M) D, Ca Placed Under Review
for Possible Downgrade; previously on Jun 17, 2009 Downgraded
to Ca
EUR8.35M (Currently EUR9.2M) E1, Ca Placed Under Review
for Possible Downgrade; previously on Jun 17, 2009 Downgraded
to Ca
EUR2.85M (Currently EUR3.2M) E2, Ca Placed Under Review
for Possible Downgrade; previously on Jun 17, 2009 Downgraded
to Ca
EUR6M ComboP, Ca Placed Under Review for Possible Downgrade;
previously on Jun 17, 2009 Downgraded to Ca
Issuer: Entry Funding No.1 plc
EUR358.5M (Currently EUR204.8M) A, Baa3 Placed Under
Review for Possible Downgrade; previously on Aug 10, 2009 Downgraded
to Baa3
EUR8M B, Caa1 Placed Under Review for Possible Downgrade; previously
on Aug 10, 2009 Downgraded to Caa1
EUR8M C, Caa3 Placed Under Review for Possible Downgrade; previously
on Aug 10, 2009 Downgraded to Caa3
EUR10M D, Ca Placed Under Review for Possible Downgrade; previously
on Aug 10, 2009 Downgraded to Ca
EUR11M E, Ca Placed Under Review for Possible Downgrade; previously
on Aug 10, 2009 Downgraded to Ca
Today's rating actions are the result of worse than anticipated credit
deterioration affecting the underlying pools of these six German SME transactions.
This is primarily reflected by higher default rates than envisaged when
these deals were last monitored as further detailed below. To the
extent available in a transaction, Moody's also considers
as a key metric the increase in the Principal Deficiency Ledger (PDL).
PDL is a measure representing the cumulative nominal amount of defaults
in a transaction cured by the redemption of the senior note from excess
spread proceeds. An increase in PDL highlights that the positive
effect of excess spread diversion mechanisms designed to protect most
senior tranches in the transaction is outbalanced by rate of defaults
in a given portfolio. This therefore implies lower collateralization
levels for all tranches. As most of these deals are highly concentrated
(typically less than 60 obligors in each pool), ratings show an
increased sensitivity to changes in collateralization levels.
Moody's expects to resolve its review in the coming weeks following further
deal specific analysis.
European Private Funding I Limited Partnership (Preps 2004-1) has
experienced further credit deterioration since last rating action on 7
May 2009, illustrated among others by the missed interest payment
of a loan of EUR 10 million accounting for 4.7% of the outstanding
portfolio pool.
Preps 2005-1 Limited Partnership has seen an increase in the PDL
from zero to EUR 15.0 million (5.6% of the pool)
between the February 2009 investor report and latest reporting date.
Preps 2005-2 plc has suffered further defaults causing the PDL
to increase to EUR 52.0 million (18.4% of the pool)
as given in the report dated March 2010 from EUR 32.9 million (10.5%
of the pool) in the report used at last monitoring report dated March
2009. In addition, two credits accounting for EUR 24 million
or 8.5% of the outstanding portfolio have recently missed
interest payments suggesting further defaults are likely.
H.E.A.T Mezzanine S.A. - Compartment
3 Notes has seen an increase in the PDL to EUR 58.3 million (24.0%
of the pool) as of the April 2010 report from EUR 27.3 million
(10.4% of the pool) in the report dated October 2009.
PULS CDO 2006-1 PLC, which references some senior unsecured
in addition to subordinated bonds, has seen an increase in its PDL
to EUR 36.1 million (18.7% of the pool) in the January
2010 report from EUR 25.8 million (12.1% of the pool)
as of the April 2009 report.
Entry Funding, which is exposed to a relatively more granular portfolio
made of senior unsecured loans from 185 issuers, has experienced
an increase in the PDL to EUR 31.1 million (14.99%
of the pool) on March 2010 from EUR 20.8 million (8.2%
of the pool) on June 2009 and an increase in delinquencies over the same
period.
Today's watchlisting does not indicate an increased pessimism regarding
the German SME sector as a whole but rather reflects worse than expected
performance of the above listed transactions. Despite early signs
of stabilization in the German SME loan market, Moody's outlook
on German SMEs continues to be negative in H01 2010, as a result
of persisting liquidity concerns for small and medium businesses in the
context of a sluggish economic recovery in Germany. Moody's
expects that the default rate for the SME sector in 2010 will be comparable
to that of 2009.
Moody's initially analyzed and continues to monitor this transaction using
primarily the methodology and its supplements for cash flow CLOs as described
in Moody's Special Reports and press releases below:
--Moody's Approach to Rating Corporate Collateralized Synthetic
Obligations (March 2009)
--Moody's Approach to Rating CDOs of SMEs in Europe (February
2007)
These reports can be found at www.moodys.com in the Research
and Ratings directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating these issuances can also be found in the Ratings Methodologies
subdirectory. 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.
London
Greg O''Reilly
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Florence Tadjeddine
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places six German SME CDOs under review for downgrade