London, 29 June 2012 -- Moody's Investors service today downgraded the class C notes in
Apulia Finance N. 4 S.r.l. ("Apulia
N. 4") and confirmed the senior notes in Apulia Finance N.
4 -- Series 2008-2 S.r.l. ("Apulia
N. 4 2008-2"). For a more detailed list of
affected transactions please refer to the end of the press release.
This rating action concludes the rating review on the two transactions
prompted by worse-than-expected collateral performance in
May 2011.
RATINGS RATIONALE
Today's ratings action takes into consideration the worse-than-expected
collateral performance and the available credit enhancement supporting
the notes.
--KEY COLLATERAL PERFORMANCE
The worse-than-expected performance of Apulia N.
4 and Apulia N. 4 2008-2 is demonstrated by a cumulative
default rate of 5.2% of the original pool balance for Apulia
N. 4 in April 2012 and 6.6% for Apulia N.
4 2008-2 in May 2012. These values compare with Moody's
original default assumptions of 3% and 3.5%,
respectively. Over the past year 90+ delinquencies have been
volatile with no clear up or downward trend. As of the last reporting
date, 90+ delinquencies in the two transactions were 1.5%
in Apulia N. 4 and 0.7% in Apulia N. 4 2008-2.
As of April 2012, the cumulative recovery rate for Apulia N.
4 was 22% while for Apulia N. 4 2008-2 it was 65%.
The difference in recovery rates between the two transactions is explained
by the repurchase of defaulted loans by the originator BancApulia (Baa3/P-3)
in the first half of 2011 in the pool of Apulia N. 4 2008-2.
Moody's performed a revision of the expected cumulative default rate and
the expected severity of the underlying collateral portfolios.
As a result Moody's assumes a cumulative default rate for the remaining
collateral portfolio of 4.5% for Apulia N. 4 and
7.2% for Apulia N. 4 2008-2. This translates
into an increased cumulative default rate on original balance of 7.3%
for Apulia N. 4 and of 11.2% for Apulia N.
4 2008-2. Consequently, Moody's assumes an expected
loss (EL) assumption for the remaining portfolio of 2.3%
for Apulia N. 4 and 3.7% for Apulia N. 4 2008-2.
This translates to lifetime expected loss assumptions, as percentage
of original balance, of 3.6% for Apulia N.
4 and 5.8% for Apulia N. 4 2008-2.
During its review, Moody's re-assessed updated loan-by-loan
information and increased its MILAN CE assumption to 14.3%
from 7.3% in Apulia N. 4 and to 13% from 7.3%
in Apulia N. 4 2008-2. In its MILAN CE assumption
for Apulia N. 4, Moody's also took into consideration
the portion of commercial borrowers included in the collateral pool.
As of the last reporting date in April 2012, approximately 9%
of the portfolio was made up of commercial borrowers.
--AVAILABLE CREDIT ENHANCEMENT
The deterioration in performance led to draws on the available reserve
funds of Apulia N. 4 and Apulia N. 4 2008-2,
as available excess spread was insufficient to cover for the level of
periodic defaults. In Apulia N. 4 and Apulia N. 4
2008-2, the available reserve fund balances were reduced
to 90% and 59% of their respective target balances.
In Apulia N. 4 the net cumulative default rate, which is
the cumulative default rate adjusted for recoveries, is at 4.06%,
which exceeds the trigger level of 4%. As long as the trigger
is in breach the structure will benefit from trapping additional excess
spread, which will be available to repay the most senior notes in
the waterfall. In Apulia N. 4 2008-2, a similar
mechanism is in place, but as of the last payment date the trigger
has been not in breach.
Despite elevated periodic default levels and the consequent reduction
of the reserve funds, both transactions could benefit from deleveraging.
As a result the current credit enhancement as of the last payment date
increased to 6% from 3% at closing for the class C notes
in Apulia N. 4 and to 15.2% from 10.8%
at closing for the class A notes in Apulia N. 4 2008-2.
The combination of the key updated assumptions together with the current
credit enhancement levels resulted in the downgrade of the class C notes
of Apulia N. 4 and the confirmation of the class A notes of Apulia
N. 4 2008-2.
Moody's analysed various sensitivities of cumulative loss rates to test
the robustness of the confirmed ratings. For instance, Moody's
observed that the quantitative/model-indicated rating outcome of
the class A notes of Apulia N. 4 2008-2 would remain consistent
with the current rating if the mean loss assumptions increased up to 50%
of its revised value (5.7% vs. 3.7%
base case assumption).
Expected loss assumptions remain subject to uncertainty with regard to
general economic activity, interest rates and house prices.
Lower than assumed realised recovery rates or higher than assumed default
rates would negatively affect the ratings in these transactions.
As the Euro area crisis continues, the rating of the 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 impact the ratings of the notes.
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.
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).
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.
In reviewing this transaction, 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.
Issuer: Apulia Finance N. 4 S.r.l.
....EUR19.1M C Notes, Downgraded
to A3 (sf); previously on May 20, 2011 A2 (sf) Placed Under
Review for Possible Downgrade
Issuer: Apulia Finance N. 4 S.r.l. -
Series 2008-2
....EUR288.45M A Notes, Confirmed
at Aa2 (sf); previously on Feb 21, 2012 Downgraded to Aa2 (sf)
and Remained On Review for Possible Downgrade
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.
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.
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
Carole Gintz
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 takes actions on Apulia Finance N. 4 S.r.l. and Apulia Finance N. 4 -- Series 2008-2 S.r.l.
