Madrid, February 24, 2015 -- Moody's Investors Service has today upgraded the ratings of 8 notes,
and affirmed the ratings of 2 notes in 4 Italian asset-backed securities
(ABS) transactions:
Locat Securitisation Vehicle 3 S.r.l.,
Locat SV S.r.l. - Serie 2006 (LSV4),
F-E Gold S.r.l. and
Medioleasing Finance S.r.l.
The upgrades of the local-currency country risk ceilings to Aa2
from A2 in Italy on 20 January 2015 prompted today's rating actions.
Please refer to the revised methodology on country ceilings and the new
ceiling applied to euro area countries: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_316765.
Please refer to the end of the Ratings Rationale section for a list of
affected ratings.
RATINGS RATIONALE
The main drivers behind today's upgrades are (1) the reduced country
risk as reflected by the increase in the maximum achievable rating in
Italy and (2), the deleveraging since the last rating actions for
these deals.
Moody's analysis incorporates the revisions, when needed,
of portfolio default assumptions taking into account the collateral performance
to-date as well as the exposure to relevant counterparty servicers,
account banks and swap providers. Moody's cash flow sensitivity
stress tests as well as borrower concentration analysis were also taken
into account in today's rating actions.
Moody's has also affirmed the ratings of the notes where the current credit
enhancement was commensurate with the current ratings.
INCREASED LOCAL-CURRENCY COUNTRY CEILINGS
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 ratings for covered bonds and
structured finance transactions were increased to Aa2 from A2 for Italy.
KEY COLLATERAL ASSUMPTIONS AND CREDIT ENHANCEMENT LEVELS
Moody's has revised its volatility assumption in those transactions given
the reduced country risk while default and recovery assumptions remain
unchanged given the stable performance of the transactions except for
F-E Gold S.r.l. which showed recent significant
increase in 90+ delinquencies.
In Locat Securitisation Vehicle 3 S.r.l., the
default probability assumption on current balance of 12% together
with a recovery rate of 35% and a volatility of 45.7%
corresponds to an unchanged portfolio credit enhancement (portfolio CE)
of 23.5%.
In Locat SV S.r.l. - Serie 2006 (LSV4),
the default probability assumption on current balance of 12% together
with a recovery rate of 35% and a volatility of 45.9%
corresponds to an unchanged portfolio CE of 22.5%.
In F-E Gold S.r.l., Moody's increased
its DP to 18% from 16% of the current pool balance to reflect
current pool characteristics. In particular, this transaction
has high level of late delinquencies which could translate into additional
defaults in the transaction. The portfolio CE increased from 25%
to 28% as reflected by the volatility of 46.1% and
unchanged recovery rate of 45%.
In Medioleasing Finance S.r.l., the default
probability assumption on current balance of 18% together with
a recovery rate of 45% and a volatility of 48.1%
corresponds to an unchanged portfolio credit enhancement of 25.5%.
Moody's assumed that the recovery rate would go down to 15% upon
the originators default in those four transactions. Legal uncertainty
regarding the rights of the special purpose vehicles to recover amounts
on the lease contracts upon originator's default drives this assumption.
Moody's incorporated the sensitivity analysis of the ratings to
borrower concentrations in the ABS deals that have collateral pools of
SME loans and small-ticket leases, and considered the credit-enhancement
coverage of the large debtors in the asset pools. The results of
this analysis limited the potential upgrade of the rating on the Class
B Notes and C Notes of Locat Securitisation Vehicle 3 S.r.l.
to A3 (sf) as the credit enhancement of the Class B Notes of 44.9%
only nearly covers the top ten debtors and the credit enhancement of the
Class C Notes of 6% only covers the top one debtor.
--- EXPOSURE TO COUNTERPARTIES
Today's rating actions took into consideration the notes'
exposure to relevant counterparties, such as servicers, account
banks or swap providers. Moody's considered how the liquidity
available in the transactions and other mitigants support continuity of
note payments, in case of servicer default. Moody's
also assessed the default probability of each transaction's account
bank providers. Moody's analysis considered the risks of
additional losses on the notes in the event of them becoming unhedged,
following a swap counterparty default.
--- RATING SENSITIVITY
To ensure rating stability and to test the sensitivity of the notes' ratings,
Moody's ran stressed scenarios in cash flow models before upgrading
the relevant notes.
The stressed scenarios assume (1) a 25% stresses for the default
probability assumption for ABS; and (2) a 20% increase in
the portfolio CE assumption. The ratings were upgraded when the
negative rating impact resulting from the above test was within the sensitivity
tolerance. None of the transactions upgrades were limited by the
sensitivity to key collateral assumptions.
The principal methodology used in these ratings was "Moody's Approach
to Rating ABS Backed by Equipment Leases and Loans" 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 the ratings
are (1) a lower probability of high-loss scenarios owing to an
upgrade of the country ceiling; (2) performance of the underlying
collateral that exceeds Moody's expectations; (3) deleveraging
of the capital structure; and (4) improvements in the credit quality
of the transaction counterparties.
Factors or circumstances that could lead to a downgrade of the ratings
are (1) an increased probability of high-loss scenarios owing to
a downgrade of the country ceiling; (2) performance of the underlying
collateral that does not meet Moody's expectations; (3) deterioration
in the notes' available credit enhancement; and (4) deterioration
in the credit quality of the transaction counterparties.
List of Affected Ratings:
Issuer: Locat Securitisation Vehicle 3 S.r.l.
....EUR160M B Notes, Upgraded to A3
(sf); previously on Jan 23, 2015 Baa2 (sf) Placed Under Review
for Possible Upgrade
....EUR33M C Notes, Affirmed Caa1 (sf);
previously on Jun 25, 2013 Downgraded to Caa1 (sf)
Issuer: Locat SV S.r.l. - Serie 2006
(LSV4)
....EUR1348M A2 Notes, Upgraded to Aa2
(sf); previously on Jan 23, 2015 A2 (sf) Placed Under Review
for Possible Upgrade
....EUR152M B Notes, Upgraded to A1
(sf); previously on Jan 23, 2015 Baa3 (sf) Placed Under Review
for Possible Upgrade
....EUR64M C Notes, Affirmed Caa2 (sf);
previously on Dec 10, 2012 Downgraded to Caa2 (sf)
Issuer: F-E Gold S.r.l.
....EUR749M A2 Notes, Upgraded to A2
(sf); previously on Jan 23, 2015 Baa1 (sf) Placed Under Review
for Possible Upgrade
....EUR56M B Notes, Upgraded to Ba1
(sf); previously on Jan 23, 2015 B1 (sf) Placed Under Review
for Possible Upgrade
....EUR10.2M C Notes, Upgraded
to B2 (sf); previously on Jan 23, 2015 Caa2 (sf) Placed Under
Review for Possible Upgrade
Issuer: Medioleasing Finance S.r.l.
....EUR300M A Notes, Upgraded to Aa2
(sf); previously on Jan 23, 2015 A2 (sf) Placed Under Review
for Possible Upgrade
....EUR105.4M B Notes, Upgraded
to B3 (sf); previously on Jan 23, 2015 Caa1 (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.
Antonio Tena
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carole Gintz
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on 4 Italian ABS deals
