Frankfurt am Main, October 20, 2011 -- Moody's Investors Service has today downgraded or placed on review the
ratings of seven tranches in three Italian asset-backed securities
(ABS) and eight tranches in six residential mortgage-backed securities
(RMBS) due to insufficient credit enhancement. This rating action
follows Moody's three-notch downgrade of the rating of the
government of the Republic of Italy to A2 with a negative outlook,
from Aa2. For full details, please refer to "Moody's downgrades
Italy's government bond ratings to A2 with a negative outlook; Prime-1
rating affirmed", published on 4 October 2011.
At the same time, Moody's placed on review for downgrade the
ratings of eleven tranches in eight RMBS due to increased operational
risks. This action follows Moody's downgrade of the Italian
banks on 5 October 2011. For full details, please refer to
"Moody's takes rating actions on Italian banks following Italy's
downgrade to A2".
The full list of affected ratings and summary rating rationale by tranche
is detailed in the following link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF265194
Moody's expects to conclude the rating reviews within 3 months.
As previously stated on 4 October 2011, Moody's believes that a
Aaa(sf) rating remains achievable for Italian structured finance transactions
that (i) benefit from sufficient credit enhancement; and (ii) have
highly rated transaction parties or appropriate mitigants in place.
Structural features and credit enhancement will continue to be able to
mitigate the effects of increased collateral risk and performance disruption
risk in a severe event and the level of uncertainty around them.
Moody's discusses the relationship between sovereign ratings and structured
finance ratings in Moody's Special Report "Assessing the Impact of the
Eurozone Sovereign Debt Crisis on Structured Finance Transactions",
published in April 2011.
RATINGS RATIONALE
-- INCREASED COLLATERAL RISK DRIVES DOWNGRADES FOR HIGHLY
RATED TRANCHES WITH INSUFFICIENT CREDIT ENHANCEMENT
Today's rating action primarily reflects the increased risk that
the factors driving the downgrade of the Italian sovereign will lead to
a significant and uniform deterioration in asset performance. Whilst
the probability of such deterioration remains very low, it has reached
a point where current levels of credit enhancement for highly rated senior
notes are, in some cases, insufficient to support the highest
rating levels.
Given the significant challenges faced by the Italian government and the
resultant likelihood of a difficult economic environment emerging,
the debt repayment capacity of some individuals and small and medium enterprises
(SMEs) will become increasingly strained. While the government's
reform plans have begun to address the problems of low productivity and
significant labour and product market rigidity, they will ultimately
lead to public spending cuts, tax rises and efforts to increase
tax compliance, and private sector knock-on effects,
all of which hurt obligor performance.
Moody's believes that for Italian structured finance transactions to achieve
a Aaa(sf) rating a minimum level of credit enhancement would be (i) 10%-15%
for RMBS; (ii) 15%-20% for auto ABS; (iii)
20%-25% for consumer ABS; and (iv) 30%-35%
for SME/Leases ABS.
Moody's has reviewed the ratings of Italian ABS and RMBS tranches
that have credit enhancement levels in or below the minimum ranges listed
above. In its assessment of ABS transactions, Moody's
considered key collateral characteristics, performance and structural
elements, such as excess spread or expected amortisation.
In its assessment of RMBS transactions, Moody's considered
(i) available loan-by-loan information, such as loan-to-value
(LTV) ratios; and (ii) exposure to obligors with high risk profiles
in Southern Italy, such as self-employed borrowers or SMEs.
To retain a Aaa(sf) rating, senior tranches backed by pools with
greater-than-average exposure to self-employed and
SME obligors would need credit enhancement levels of greater than 10%
and 15%, respectively.
Moody's has downgraded senior tranches with insufficient credit
enhancement by one or two notches. In the case of Auto ABS Srl,
Moody's has placed under review the Aaa rating because of insufficient
current credit enhancement. Moody's will re-assess
the credit enhancement at the next interest payment date when additional
information on collections and amortization will be available.
In the case of Adriano Finance Srl Moody's was notified that the
transaction will be re-structured and the credit enhancement will
be increased. Moody's has therefore placed on review for
downgrade the senior notes of Adriano Finance Srl, pending the completion
of the restructuring proposal. Collateral assumptions and the loss
and cash flow analysis for the affected transactions have not been updated
as the rating action has been primarily driven by credit enhancement tests.
In some cases, the rating agency downgraded and/or placed on review
mezzanine or junior tranches in transactions with relatively low credit
enhancement. During its rating review, Moody's expects
to re-assess the key collateral assumptions in these transactions
in light of the increasing economic uncertainty.
Moody's negative outlook on the Italian government's debt rating reflects
ongoing economic and financial risks in Italy and in the euro area.
The uncertain market environment and the risk of further deterioration
in investor sentiment could constrain the country's access to the public
debt markets. If such risks were to materialise and the long-term
availability of external sources of liquidity support were to remain uncertain,
the country's debt rating could transition to substantially lower rating
levels. The highest achievable structured finance rating for Italian
structured finance transactions may be revised progressively downwards
if the likelihood of those events were to increase.
--RISING PERFORMANCE DISRUPTION RISK IS ALSO AFFECTING ITALIAN
STRUCTURED FINANCE RATINGS
Moody's has placed on review for downgrade the senior notes in a
number of Italian RMBS transactions because of insufficient back-up
servicing arrangements. This rating action follows the downgrade
of a number of Italian banks that are fulfilling the servicer role in
these transactions.
Moody's has placed the senior ratings on review for downgrade in
transactions (i) with Baa-rated servicers, where there is
no party in place to facilitate a servicing transfer or no rating trigger
to appoint a back-up servicer; and (ii) with low-rated
servicers, where there is no back-up servicer in place or
the back-up servicer arrangement may not be sufficiently hot and
the cash manager may not be able to ensure continuity of payments should
the servicer report not be delivered in time.
As part of its review of these ratings, Moody's will assess rising
performance disruption risk and the measures issuers have put in place
to mitigate this risk, in line with the criteria described in the
Rating Implementation Guidance "Global Structured Finance Operational
Risk Guidelines: Moody's Approach to Analyzing Performance Disruption
Risk", published on 28 June 2011.
--INCREASED COUNTERPARTY RISKS
Moody's downgrade of a number of Italian banks acting as transactions
parties (i.e., swap counterparties, account
banks and servicers) has resulted in several trigger breaches.
The rating agency expects that remedial measures described in the transaction
documentations will be implemented rapidly. The non-implementation
of these remedies may result in further rating downgrades.
While the deteriorating credit quality of originating banks will increase
set-off risk for a number of ABS and RMBS transactions, Moody's
notes that several transactions benefit from set-off reserves or
from increased credit enhancement levels on the back of deleveraging.
Moreover, Moody's is currently reviewing the value it gives
to the Deposit Guarantee Funds, which mitigate set-off risk
as described in "Moody's Approach to Set-off risk in
Italian Structured and Covered Bonds Transactions", published
in February 2011. This review marks a departure from Moody's
previous use of a stressed originator rating to model set-off risk
on new transactions. Moody's will communicate the results
of this review, as well as their potential impact on existing ratings,
to the market upon completion.
In addition, Moody's downgraded the class B notes of Medioleasing
(an Italian lease ABS) as payments of interest and principal of the notes
are guaranteed by Banca delle Marche, which the rating agency downgraded
to Baa1 from A3.
"The Global Structured Finance Operational Risk Guidelines:
Moody's Approach to Analyzing Performance Disruption Risk" rating
implementation guidance and the minimum credit enhancement requirements
described above complement and in the Moody's Special Report "Assessing
the Impact of the Eurozone Sovereign Debt Crisis on Structured Finance
Transactions" published in April 2011the applicable principal methodologies
for each asset class.
The principal methodology used in rating RMBS transactions was "Moody's
Approach to Rating RMBS in Europe, Middle East, and Africa",
published in October 2009. The principal methodology used in rating
Consumer ABS transactions was "Moody's Approach to Rating Consumer
Loan ABS Transactions", published in July 2011. The
principal methodology used in rating auto ABS transactions was "Moody's
Approach to Rating European Auto ABS", published November
2002. The principal methodology used in rating ABS SME was "Moody's
Approach to Rating CDOs of SMEs in Europe", published February
2007.
LIST OF AFFECTED ABS TRANSACTIONS
Issuer: Auto ABS S.r.l.
....EUR816M A Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Jul 25,
2007 Definitive Rating Assigned Aaa (sf)
....EUR34M B Notes, A1 (sf) Placed Under
Review for Possible Downgrade; previously on Jul 25, 2007 Definitive
Rating Assigned A1 (sf)
Issuer: Cars Alliance Funding Plc -- Series 2007-1
....EUR838.5M A Notes, Downgraded
to Aa1 (sf); previously on Jul 2, 2007 Definitive Rating Assigned
Aaa (sf)
....EUR35.5M B Notes, A2 (sf)
Placed Under Review for Possible Downgrade; previously on Jul 2,
2007 Definitive Rating Assigned A2 (sf)
Issuer: Leasimpresa Finance S.r.l. (LF 2)
....EUR931.5M A Notes, Downgraded
to Aa2 (sf); previously on Sep 7, 2010 Confirmed at Aaa (sf)
....EUR57.2M B Notes, A2 (sf)
Placed Under Review for Possible Downgrade; previously on Sep 7,
2010 Confirmed at A2 (sf)
....EUR10.3M C Notes, Baa2 (sf)
Placed Under Review for Possible Downgrade; previously on Sep 7,
2010 Confirmed at Baa2 (sf)
Issuer: Medioleasing Finance S.r.l
....EUR105.4M B Notes, Downgraded
to Baa1 (sf); previously on Jul 6, 2009 Downgraded to A3 (sf)
LIST OF AFFECTED RMBS TRANSACTIONS
Issuer: Adriano Finance S.r.l
....EUR7557.95M A Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Aug
4, 2008 Assigned Aaa (sf)
Issuer: Argo Mortgage 2 S.r.l.
....EUR808.3M A Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on Jul 26,
2004 Definitive Rating Assigned Aaa (sf)
....EUR26.8M B Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on Jun 29,
2010 Upgraded to Aaa (sf)
Issuer: Argo Mortgage S.r.L.
....EUR478M A Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Mar 28,
2002 Definitive Rating Assigned Aaa (sf)
Issuer: Asti Finance S.r.l.
....EUR479.75M A Notes, Downgraded
to Aa1 (sf); previously on May 23, 2008 Assigned Aaa (sf)
Issuer: Bipielle Residential S.r.l.
....EUR733M A2 Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Jun 25,
2004 Definitive Rating Assigned Aaa (sf)
Issuer: BP Mortgages S.r.l.
....EUR1172.65M A2 Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Apr
14, 2011 Confirmed at Aaa (sf)
Issuer: Capital Mortgages Series 2007-1
....EUR1736M A1 Notes, Downgraded to
Aa1 (sf); previously on Mar 30, 2010 Confirmed at Aaa (sf)
....EUR644M A2 Notes, Downgraded to
Aa1 (sf); previously on Mar 30, 2010 Confirmed at Aaa (sf)
....EUR74M B Notes, A3 (sf) Placed Under
Review for Possible Downgrade; previously on Mar 30, 2010 Downgraded
to A3 (sf)
Issuer: CASA D'ESTE FINANCE S.R.L. II
....EUR270M A1 Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Dec 18,
2008 Assigned Aaa (sf)
....EUR30M A2 Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Dec 18,
2008 Assigned Aaa (sf)
Issuer: Fanes S.r.l.
....EUR400M A Notes, Aaa (sf) Placed
Under Review for Possible Downgrade; previously on Jul 28,
2009 Assigned Aaa (sf)
Issuer: Marche Mutui 2 S.r.l.
....EUR511.45M A2 Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Oct
23, 2006 Definitive Rating Assigned Aaa (sf)
Issuer: Marche Mutui Società per la Cartolarizzazione S.r.l.
....EUR281.8M A2 Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on Mar 31,
2003 Definitive Rating Assigned Aaa (sf)
Issuer: Mercurio Mortgage Finance S.R.L. 2009-6
....EUR2261.55M Class A Notes,
Downgraded to Aa1 (sf); previously on Nov 23, 2009 Assigned
Aaa (sf)
Issuer: Sestante Finance Srl - Series 2005
....EUR47.35M B Notes, A2 (sf)
Placed Under Review for Possible Downgrade; previously on Dec 18,
2009 Downgraded to A2 (sf)
Issuer: Vela Home - Series 4
....EUR82.8M B Notes, Downgraded
to Aa2 (sf) and Placed Under Review for Possible Downgrade; previously
on Oct 3, 2006 Definitive Rating Assigned Aa1 (sf)
Issuer: Voba Finance S.R.L.
....EUR295.05M A2 Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Dec
12, 2006 Definitive Rating Assigned Aaa (sf)
The lead analyst and rating office for each of the transactions affected
are generally different from the contact and office listed at the end
of this press release. For each transaction, the lead analyst
name and the rating office is available on the issuer page on www.moodys.com
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 rating of Adriano Finance S.r.l has been disclosed to
the rated entity or its designated agent(s) and issued with amendment
resulting from that disclosure following new information provided by the
transaction sponsor to Moody's.
The rating of all other deals have been disclosed to the rated entity
or its designated agent(s) and issued with no amendment resulting from
that disclosure.
Information sources used to prepare the rating 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 this transaction
in the past six months.
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.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three 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 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.
Sebastian Hoepfner
Associate Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes action on Italian ABS and RMBS transactions
