London, 27 March 2015 -- Moody's Investors Service has today upgraded the ratings of nine notes,
kept two of these notes on review for upgrade, confirmed the rating
of one note and downgraded the ratings of six notes in six Italian mortgage-backed
securities (RMBS) transactions: Sestante Finance S.r.l.,
Sestante Finance S.r.l. - Series 2004,
Sestante Finance S.r.l. - Series 2005,
Sestante Finance S.r.l. - Series 2006,
Berica 6 Residential MBS S.r.l. and Capital Mortgage
S.r.l. (Capital Mortgages Series 2007-1).
Today's rating actions conclude the placement of the ratings on review
for upgrade of nine notes initiated on 23 January 2015, following
the upgrade of the Italian country ceiling to Aa2 from A2. (see
"Moody's takes rating actions on Irish, Italian, Portuguese,
Spanish ABS/RMBS deals"). Today's rating actions also
conclude the placement of the ratings on review for downgrade of seven
notes in Berica 6 Residential MBS S.r.l. and Capital
Mortgage S.r.l. (Capital Mortgages Series 2007-1)
following the deterioration in collateral performance.
Please refer to the end of the Ratings Rationale section for a list of
affected ratings.
RATINGS RATIONALE
Today's rating upgrades reflect (1) the upgrade of the Italian local currency
country risk ceiling to Aa2 and (2) the updates to Moody's structured
finance rating methodologies to incorporate the new Counterparty Risk
("CR") Assessment for banks.
Today's placement on review for upgrade of two notes reflects the
rating review actions of banks resulting from Moody's revised bank
methodology.
Today's confirmation reflects Moody's view that the available credit
enhancement is sufficient to maintain the current rating on the affected
note.
Today's downgrades reflects the worse than anticipated performance
in the transactions Berica 6 Residential MBS S.r.l.
and Capital Mortgage S.r.l. (Capital Mortgages Series
2007-1) which has also resulted in an increase of the key collateral
assumptions.
-- REDUCED COUNTRY RISK
The country ceilings reflect a range of risks that issuers in any jurisdiction
are exposed to, including economic, legal and political risks.
On 20 January 2015, Moody's announced a six-notch uplift
between a government bond rating and its country risk ceiling for Italy.
As a result, the maximum achievable rating for structured finance
transactions increased to Aa2 (sf) from A2 (sf) for Italy.
-- COUNTERPARTY RISK EXPOSURE AND UPDATES TO MOODY'S
STRUCTURE FINANCE RATING METHODOLOGIES
Today's rating actions took into consideration the notes'
exposure to relevant counterparties, such as servicers, account
banks or swap providers. Moody's incorporated the updates
to its structured finance methodologies in its analysis of the transactions
affected by today's rating actions (see "Moody's updates several
structured finance rating methodologies in light of its new counterparty
risk assessment for banks", published on 16 March 2015).
Moody's now matches banks' exposure in structured finance
transactions to the CR Assessment for commingling risk, and to the
bank deposit rating when analyzing set-off risk. Moody's
has introduced a recovery rate assumption of 45% for both exposures.
Moody's considered how the liquidity available in the transactions
and other mitigants support continuity of note payments, in case
of servicer default, using the CR Assessment as a reference point
for servicers or cash mangers.
Moody's also assessed the default probability of each transaction's
account bank providers by referencing the bank's deposit rating.
Moody's analysis considered the risks of additional losses on the
notes if they were to become unhedged following a swap counterparty default
by using the CR Assessment as reference point for swap counterparties.
In addition Moody's uses internal guidance on the CR Assessments
to assess the rating impact on outstanding structured finance transactions.
The internal guidance is in line with the guidance published in its updated
bank rating methodology and its responses to frequently asked bank methodology-related
questions.
The placement on review for upgrade of Class A1 and A2 notes in Sestante
Finance S.r.l. - Series 2006 reflect the expected
improvement in the credit quality of Banca Popolare dell'Emilia Romagna
s.c.a.r.l. which acts as the collection
account bank in the transaction.
Moody's review of global bank ratings will not affect the other
ratings reviewed today if the final ratings on the banks are in line with
Moody's preliminary indications (see "Moody's reviews global
bank ratings", published on 17 March 2015).
-- REVISION OF KEY COLLATERAL ASSUMPTIONS
Moody's has reassessed its lifetime loss expectation, taking into
account the transactions' underlying collateral performance to date.
The portfolios in Berica 6 Residential MBS S.r.l.,
Capital Mortgage S.r.l. (Capital Mortgages Series
2007-1) and Sestante Finance S.r.l. -
Series 2006 show a performance worse than expected, with outstanding
defaults that continue to increase. As a result, Moody's
has increased its Expected Loss (EL) assumption for Berica 6 Residential
MBS S.r.l. to 6.65% from 6.07%
over the original pool balance, to 7.90% from 6.72%
in Capital Mortgage S.r.l. (Capital Mortgages Series
2007-1) and to 11.00% from 10.49% in
Sestante Finance S.r.l. - Series 2006.
Moody's has also increased the MILAN CE in Berica 6 Residential MBS S.r.l.
to 17.0% from 14.7% and in Capital Mortgage
S.r.l. (Capital Mortgages Series 2007-1) from
12.3% to 18.5%.
Moody's quantitative analysis incorporates the ratings' sensitivity
to increases in key collateral assumptions. The increases included
stresses between 1.25x and 1.50x of the current EL assumption
and 1.2x MILAN CE. Moody's sensitivity analysis would
typically expect to see the ratings fall by no more than one to three
notches using these stressed assumptions.
Principal Methodology:
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework", published in January
2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of these ratings
include (1) further decrease in sovereign risk; (2) better-than-expected
performance of the underlying collateral; (3) deleveraging of the
capital structure; and (4) improvements in the credit quality of
the transaction counterparties above the preliminary indication of outcome
ratings, after Moody's concluded its review under the bank
rating methodology (see "Moody's reviews global bank ratings",
published on 17 March 2015).
Factors or circumstances that could lead to a downgrade of these ratings
include (1) an increase in sovereign risk; (2) worse-than-expected
performance of the underlying collateral; (3) deterioration in the
notes' available credit enhancement; and (4) deterioration in the
credit quality of the transaction counterparties.
List of Affected Ratings:
Issuer: Berica 6 Residential MBS S.r.l.
....EUR 1185M Class A2 Notes, Confirmed
at A3 (sf); previously on Dec 10, 2014 A3 (sf) Placed Under
Review for Possible Downgrade
....EUR 42.8M Class B Notes,
Downgraded to Ba3 (sf); previously on Dec 10, 2014 Ba2 (sf)
Placed Under Review for Possible Downgrade
....EUR 28.6M Class C Notes,
Downgraded to Caa3 (sf); previously on Dec 10, 2014 B3 (sf)
Placed Under Review for Possible Downgrade
....EUR 8.565M Class D Notes,
Downgraded to Ca (sf); previously on Dec 10, 2014 Caa2 (sf)
Placed Under Review for Possible Downgrade
Issuer: Capital Mortgage S.r.l. (Capital Mortgages
Series 2007-1)
....EUR 1736M Class A1 Notes, Downgraded
to Baa2 (sf); previously on Jan 23, 2015 Baa1 (sf) Placed Under
Review for Possible Downgrade
....EUR 644M Class A2 Notes, Downgraded
to Baa2 (sf); previously on Jan 23, 2015 Baa1 (sf) Placed Under
Review for Possible Downgrade
....EUR 74M Class B Notes, Downgraded
to B3 (sf); previously on Jan 23, 2015 B1 (sf) Placed Under
Review for Possible Downgrade
Issuer: Sestante Finance S.r.l.
....EUR 351.22M Class A1 Notes,
Upgraded to Aa2 (sf); previously on Jan 23, 2015 A2 (sf) Placed
Under Review for Possible Upgrade
....EUR 21M Class A2 Notes, Upgraded
to Aa2 (sf); previously on Jan 23, 2015 A2 (sf) Placed Under
Review for Possible Upgrade
....EUR 17.17M Class B Notes,
Upgraded to Aa2 (sf); previously on Jan 23, 2015 A3 (sf) Placed
Under Review for Possible Upgrade
....EUR 13.36M Class C Notes,
Upgraded to Baa2 (sf); previously on Jan 23, 2015 Ba3 (sf)
Placed Under Review for Possible Upgrade
Issuer: Sestante Finance S.r.l. - Series
2004
....EUR 575.3M Class A Notes,
Upgraded to Aa3 (sf); previously on Jan 23, 2015 A3 (sf) Placed
Under Review for Possible Upgrade
....EUR 34.4M Class B Notes,
Upgraded to Ba1 (sf); previously on Jan 23, 2015 B1 (sf) Placed
Under Review for Possible Upgrade
Issuer: Sestante Finance S.r.l. - Series
2005
....EUR 791.9M Class A Notes,
Upgraded to A3 (sf); previously on Jan 23, 2015 Baa2 (sf) Placed
Under Review for Possible Upgrade
Issuer: Sestante Finance S.r.l. - Series
2006
....EUR 342.25M Class A1 Notes,
Upgraded to Ba1 (sf) and Remains On Review for Possible Upgrade;
previously on Jan 23, 2015 Ba3 (sf) Placed Under Review for Possible
Upgrade
....EUR 228.17M Class A2 Notes,
Upgraded to Ba1 (sf) and Remains On Review for Possible Upgrade;
previously on Jan 23, 2015 Ba3 (sf) Placed Under Review for Possible
Upgrade
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
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.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Ali Khan
Associate 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
Masako Oshima
Senior Vice President
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 rating action in six Italian RMBS transactions
