London, 22 May 2012 -- Moody's has today placed on review for downgrade the ratings of
residential mortgage-backed securities ("RMBS") and asset-backed
securities ("ABS") that have a strong indirect linkage to
Italian banks that Moody's downgraded on 14 May 2012. Today's
rating action affects 21 tranches, including 11 RMBS and two ABS
transactions.
As detailed in an earlier announcement ("Impact of bank credit deterioration
on structured finance will vary with degree of bank exposure" published
on 15 May 2012 http://www.moodys.com/research/Moodys-Impact-of-bank-credit-deterioration-on-structured-finance-will--PR_245919)
Moody's is placing on review for downgrade securities that rely
strongly on the performance of affected banks, while monitoring
the implementation of the various protection mechanism designed to reduce
credit linkage. If the transactions parties fail to implement effective
protection mechanism in a timely fashion, these affected securities
will likely suffer a multi notch downgrade.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF286061
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
This is a list of the ratings affected by today's action on Italian ABS
and RMBS transactions.
For additional information on Structured Finance ratings, please
refer to the webpage containing Moody's related announcements http://www.moodys.com/eusovereign
RATINGS RATIONALE
Today's rating announcement reflects the increased counterparty
risk following the deterioration in credit quality of Italian banks acting
in various roles in the affected ABS and RMBS transactions. Namely,
today's rating action takes into account : (i) the potential
for payment disruption risks, (ii) increased set-off risk
(iii) the level of exposure to swap providers and issuer account banks
Payment Disruption Risk
Moody's considers that transactions more likely to suffer a potential
payment disruption are those with weak servicers and no back-up
arrangements. Moody's has therefore placed on review for
downgrade senior notes in transactions with lowly rated servicers and
: (i) no triggers for the appointment of a back-up servicer
; or (ii) with triggers for the appointment of back up servicer already
in breach prior to the downgrade of the servicer announced on 14 of May
2012.
In addition Moody's has placed on review senior notes in two Adriatico
Finance transactions, despite the presence of triggers for the appointment
of back-up servicer. The rating agency took this action
in consideration of the severe rating downgrade of the servicer,
which was intervened by Bank of Italy on 4 of May 2012 (please see the
rating action published on 7th of May 2012 " Moody's downgrades
Banca Tercas to B3/E+; ratings remain on review for downgrade
http://www.moodys.com/research/Moodys-downgrades-Banca-Tercas-to-B3E-ratings-remain-on-review--PR_245144)
Set-Off Risk
Moody's has placed on review three tranches in two transactions
because of increased set-off risk resulting from the downgrade
of the originator, UniCredit S.p.A. (A3/P-2).
Following the downgrade of Italy to A3 the amounts covered by the deposit
guarantee scheme are not completely deducted from set-off exposure
as they are no longer assumed to be risk free. The combination
of the lower rating of the originator and the reduced value to the deposit
guarantee scheme has increased the set-off risk in these transactions
so that the credit enhancement may no longer be sufficient.
Exposure to Issuer Account Banks
Moody's consider transactions to be highly exposed to issuer account
banks in cases where a substantial portion of the credit enhancement and
liquidity in the transaction is deposited in an issuer account bank rated
below Prime-1. As a consequence Moody's has placed
on review one tranche in one transaction where UniCredit S.p.A.
(A3/P-2) acts as issuer account bank and the funds deposited in
these accounts represent more than 10% of current note balance.
Exposure to Swap Provider
Moody's has placed on review for downgrade notes in six transactions
whereby the swap counterparty was already in breach of a replacement trigger
(loss of Baa1) prior to the downgrade announced on 14 of May 2012.
The swap counterparties have now been further downgraded to either Baa3
or Ba1. During the review Moody's will assess the degree
of linkage between the notes and swap counterparty rating.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES IN FUTURE
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.
Other factors used in these ratings are described in Global Structured
Finance Operational Risk Guidelines: Moody's Approach to Analyzing
Performance Disruption Risk published in June 2011.
In reviewing the transactions exposed to increased set-off risk,
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 or EL 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 for these transactions.
Key modeling assumptions, sensitivities, cash-flow
analysis and stress scenarios for all the other affected transactions
have not been updated as the rating action has been primarily driven by
the assessment of counterparty exposure.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF286061
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items
• Ratings Rationale
• Methodologies and Models used
• Representations and Warranties
• Releasing office
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 reviews.
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.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
Sebastian Hoepfner
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 reviews Italian ABS and RMBS transactions exposed to Italian banks
