NOTE: On March 19 2013, the press release was revised as follows: Removed “parties not involved in the ratings” as a source of information in the third paragraph of the Regulatory Disclosures section. Revised release follows.
NOTE: On December 4, 2012 the press release was revised as follows: In the third paragraph, the original text stating “The downgrades range from 1 to 4 notches with an average
of 2 notches” is changed to “The downgrades range from 1 to 6 notches with an average of 3 notches”. Revised release follows.
London, 27 November 2012 -- Moody's Investors Service has today taken rating actions on seven
Italian residential mortgage-backed securities (RMBS) transactions
further to its reassessment of all Moody's-rated Italian
RMBS. The rating agency's reassessment takes into consideration
its updated European RMBS rating methodology, ongoing collateral
performance deterioration as well as the deterioration of the ratings
of the Italian sovereign and the transactions' counterparties over
the last 12 months.
Moody's has commented on these rating drivers, which have
developed in the past 12 months, in its Special Comment, "European
ABS and RMBS: Structured finance ratings in Aaa-countries
ratings are stable; downgrades expected in other countries"
published on 14 November 2012.
Specifically, Moody's has today downgraded the ratings of
three senior notes and 10 junior notes, in seven Italian RMBS transactions.
The downgrades are driven primarily by the revision of key collateral
assumptions following Moody's reassessment of the entire Italian
RMBS sector. The downgrades range from 1 to 6 notches with an average of 3 notches. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308606
for the list of affected ratings. This list is an integral part
of this press release. For a detailed rationale on each rating
action, please refer to the list of affected credit ratings.
Moody's has also revised key collateral assumptions in 71 other transactions,
which did not result in any rating change due to sufficient credit enhancement.
The list of updated assumptions for the transactions is available under
the following link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308609.
This reassessment also concludes the review of five tranches in three
Italian RMBS transactions placed on review on 8 June 2012, following
the release of the rating agency's updated methodology for rating
EMEA RMBS transactions.
The ratings downgraded as part of today's rating action, as
well as Italian RMBS previously placed on review, remain on review
for downgrade pending the reassessment of (1) credit enhancement levels
required to address the increased country risk exposure and/or (2) the
rating impact resulting from linkage to weaker counterparties.
RATINGS RATIONALE
Today's rating action are driven by the revision of key collateral
assumptions.
-- REVISION OF KEY COLLATERAL ASSUMPTIONS
Moody's has revised key collateral assumptions on 78 of the 121
Italian RMBS transactions that it currently rates. Moody's
has revised the portfolio loss assumptions in transactions because of
worse-than-expected collateral performance, which
resulted in higher expected losses. Moody's has also reassessed
the credit quality of the outstanding Italian RMBS portfolios to determine
the credit enhancement (MILAN CE) in line with Moody's updated methodology
for rating EMEA RMBS transactions. The updated European RMBS rating
methodology is described in a report titled "Moody's Approach to Rating
RMBS in Europe, Middle East, and Africa", and
the "RMBS Rating Methodology Supplement for Italy" 6 June
2012.
- Expected loss (EL)
Italian RMBS collateral performance has deteriorated over the last 12
months. Delinquencies remain stable while defaults have increased
quite significantly, according to the latest Italian RMBS indices
published by Moody's. Moody's Italian Prime RMBS index reported
90+ day delinquencies at 1.58% of current balance in
August 2012, which is in line with the 1.64% recorded
in August 2011. The cumulative defaults index increased to 2.99%
over original balance in August 2012 up from 2.28% a year
earlier. The prepayment rate index continued its decline,
standing at 3.3% in August 2012, which represents
a 53% drop compared with the same period in the previous year.
For more information on collateral performance, please see Moody's
quarterly "Italian RMBS Indices".
The continued deterioration in cumulative defaults in the Italian RMBS
market translated into higher projected EL assumptions for certain portfolios.
Moody's negative outlook for Italian RMBS is also reflected in the
updated assumptions (see outlook section below).
For the overall Italian RMBS market, Moody's is assuming an average
of 3.6% future losses for seasoned transactions with relatively
good asset performance. In the case of less seasoned transactions
showing below average performance, Moody's expects an average of
4.6% future losses.
- MILAN CE
Moody's has revised its MILAN Credit Enhancement (MILAN CE) assumptions
following publication of the updated methodology used in its RMBS collateral
analysis. MILAN is the scoring model described in the EMEA RMBS
methodology used to assist rating committees in determining the required
credit enhancement for a pool of residential mortgage-backed loans.
The key changes to the EMEA RMBS methodology include the introduction
of a transaction minimum MILAN CE level and various default and severity
setting adjustments in the scoring model.
The overall MILAN CE is subject to two separate floors, the Minimum
Portfolio MILAN CE and the Minimum Expected Loss Multiple. The
Minimum Portfolio MILAN CE for the best quality Italian RMBS ranges between
7.5%-10% for tranches rated at A2(sf),
which is the highest achievable rating for Italian structured finance
transactions given the A2 country ceiling for Italy. The revised
MILAN CE assumptions generally reflect a multiple of 3 times the revised
EL assumptions (Minimum Expected Loss Multiple), but Moody's
has used a 2 to 3 multiple for seasoned transactions with good performance.
-- DRIVERS FOR REVIEW PLACEMENT: ASSESSMENT OF COUNTRY
RISK EXPOSURE AND LINKAGE TO COUNTERPARTIES
All ratings downgraded today remain on review for downgrade pending the
reassessment of the impact of country credit deterioration on structured
finance transactions and, in some cases, exposure to counterparties
(i.e., servicer, account banks, swap counterparties
and originators). In addition, 50 tranches in 32 Italian
RMBS transactions that were not affected by today's rating actions
have ratings that remain under review for the same reasons as those listed
above.
-- OUTLOOK FOR ITALIAN RMBS
Moody's outlook for Italian RMBS collateral is negative.
Moody's expects a contracting Italian economy and an annual average
unemployment rate of 10.5% in 2012, increasing by
a further 0.5% in 2013 (see "Update to the Global
Macro-Risk Outlook 2012-14: Slow Adjustment to Weigh
on Growth", 12 November 2012).
Moody's expects that Italian house prices will continue to decline
in 2013 (see "European ABS and RMBS Outlooks: June 2012 Update",
June 2012), increasing losses on foreclosed properties (see "Sharp
Fall in Residential Housing Transactions Credit Negative for Italian Residential
Mortgage Loans", 18 July 2012)
-- OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
As the euro area crisis continues, the ratings of structured finance
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 affect the ratings of the notes.
On 21 August 2012, Moody's released a request for comment seeking
market feedback on proposed adjustments to its modelling assumptions.
These adjustments are designed to account for the impact of rapid and
significant country credit deterioration on structured finance transactions.
If the adjusted approach is implemented as proposed, the rating
of the notes affected by today rating action may be negatively affected.
See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration
on Structured Finance Transactions", (21 August 2012) for further
details regarding the implications of the proposed methodology changes
on Moody's ratings.
Additional factors that may affect the resolution of these reviews are
described in request for comments titled "The temporary Use of Cash in
Structured Finance Transactions: Eligible Investment and Bank Guidelines"
and "Approach to Assessing Linkage to Swap Counterparties in Structured
Finance Cashflow Transactions", which were both published
on 2 July 2012.
Italy's new country ceiling, as per 13 July 2012 press release,
reflects Moody's assessment that the risk of economic and financial instability
in the country has increased. The weakness of the economy and the
increased vulnerability to a sudden cessation in funding for the sovereign
constitute a substantial risk factor to other (non-government)
issuers in Italy, as income and access to liquidity and funding
could be sharply curtailed for all classes of borrowers. Further
deterioration in the financial sector cannot be excluded, which
could lead to potentially severe systemic economic disruption and reduced
access to credit. Finally, the country ceiling reflects the
risk of exit and redenomination in the unlikely event of a default by
the sovereign. If the Italian government's rating were to fall
further from its current Baa2 level, the country ceiling would be
reassessed and likely lowered at that time.
Key modelling assumptions, such as expected loss and MILAN CE assumptions
have been updated. Potential sensitivities, cash-flow
analysis and stress scenarios for the affected transactions have not been
updated, as the rating actions have been primarily driven by (1)
the update of the key assumptions; and, as a consequence,
(2) Moody's decision to assess credit enhancement levels consistent with
each structured finance rating category.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS in Europe, Middle East, and Africa" published
in June 2012. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Other Factors used in these ratings are described in "Local-Currency
Country Risk Ceiling for Bonds and Other Local Currency Obligations",
published in August 2012.
The rating considerations described in this press release complement the
principal rating methodologies applicable to each of the Italian RMBS
transactions affected by today's rating action.
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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
The person who approved Capital Mortgage S.r.l. (BIPCA
Cordusio RMBS), Capital Mortgage S.r.l. (Capital
Mortgages Series 2007-1), Cordusio RMBS Securitisation S.r.l.
- Series 2007, and F-E Mortgages S.r.l.
2005 credit ratings is Poulain-Thomas, Annick, MD -
Structured Finance, Structured Finance Group, Journalists
+44 20 7772 5456, Subscribers +44 20 7772 5454.
The person who approved BP Mortgages S.r.l.,
Intesa Sec. 3 S.r.l., and VELA HOME
S.r.l. - Series 4, credit ratings is
Weil, Ariel, Vice President - Senior Analyst,
Structured Finance Group, Journalists +44 20 7772 5456,
Subscribers +44 20 7772 5454.
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.
Marcello Vicarelli
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
Annick Poulain
MD - Structured Finance
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Ariel Weil
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
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 review of Italian RMBS sector triggers rating actions on 7 transactions
