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Announcement:

Moody's reviews Four Seas ABS due to Refinancing Risk

12 Oct 2011

Paris, October 12, 2011 -- Moody's Investors Service has today placed on review for downgrade the Baa2(sf) ratings of the class A notes issued by Four Seas S.A., as it reassesses the transaction refinancing risk and exposure to operational risks in the event that there is no refinancing of these notes upon maturity. The affected rating is:

Issuer: Four Seas S.A.

....US$125M A Notes, Baa2 (sf) Placed on Review for Downgrade; previously on Oct 20, 2010 Downgraded to Baa2 (sf)

Four Seas S.A. is an asset-backed securities (ABS) transaction backed by the selling company's rough and polished gem diamond inventories, located mainly in Belgium, accounts receivables, and a cash reserve account. The transaction is exposed to refinancing risk, market value risk, as well as to complex operational risks associated with the potential liquidation of the diamond inventories to repay the notes at maturity.

RATINGS RATIONALE

Today's review reflects Moody's concern with the uncertainty of a repayment of the notes on their maturity date in March 2012. Moody's will review the refinancing plan that it expects to receive shortly from the selling company, Diarough.

Payment Default

Repayment of the notes in this transaction will come from either a refinancing on the maturity date or, after the maturity date, a liquidation of the diamond inventory backing the notes. The lack of full principal repayment on the maturity date would constitute a default under Moody's rating definition.

If no refinancing plans were to be committed within a short time frame, Moody's would likely downgrade the transaction ratings to reflect the increased default probability, while taking account of the anticipated recoveries, in keeping with the rating implementation guidance: "Moody's Approach to Rating Structured Finance Securities in Default", published in November 2009.

Should the likelihood of a liquidation increase, the credit risk in the transaction would become increasingly exposed to operational risks surrounding the liquidation of the diamond inventory by the back-up servicer. Some of these risks include potential difficulties in recovering the inventory, in particular for diamonds on consignment, despite the benefit of insurance policies and a back-up servicer.

Liquidation Recoveries

Under a liquidation scenario, the transaction would benefit from structural features designed to allow for continued interest payments and principal recoveries. These features provide for the (i) Antwerp Diamond Bank, a fully-owned subsidiary of KBC bank NV (rated A1/Prime-1), as the warm back-up servicer, to step in and liquidate the diamond inventory; (ii) Bank of New York, as the current third-party cash manager, to allocate all payments received from the liquidity line and the proceeds from the inventory sale; (iii) Standard Chartered Bank (rated A1/Prime-1), as the liquidity line provider, to continue to provide coverage for approximately 12 months of senior fees and coupon payments; (iv) the $13.67 mm cash reserve to be used for repayment of the notes; and (v) insurance policies signed with various insurers (all rated or subsidiaries of parents rated at least A2/Prime-1), to cover potential theft by employees or management.

Given the issuer's ownership of the diamond inventory as security for the notes and the amount of over-collateralisation including the cash reserve, Moody's expects high recoveries following a payment default, under the liquidation scenario. Moody's ratings consider the anticipated recoveries from the liquidation process over a two-year period after the maturity date of March 2012 and the ratings address the expected loss on the notes by March 2014.

Methodologies

Moody's rating approach for this transaction considers both the probability of a payment default associated with a liquidation scenario and the expected recoveries from the liquidation of the assets backing the notes, as discussed above. Other Factors used in this rating are described in "Debut of Inventory Securitisation in Europe: Moody's Rating Approach", published May 2002.

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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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.

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.

Ariel Weil
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Annick Poulain
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews Four Seas ABS due to Refinancing Risk
No Related Data.
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