Actions follow country ceilings upgrades
London, 23 January 2015 -- Moody's Investors Service has today taken rating actions on Spanish,
Irish, Portuguese and Italian asset-backed securities (ABS)
and residential mortgage-backed securities (RMBS) transactions.
The upgrades of the local-currency country risk ceilings to Aa1
from Aa3 in Ireland, to Aa2 from A2 in Italy, to A1 from A3
in Portugal, and to Aa2 from A1 in Spain on 20 January 2015 --
together with the reduction of the minimum portfolio credit enhancement
-- 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.
Specifically, Moody's has upgraded the ratings of 591 notes
and placed 332 notes on review for upgrade across 14 Irish, 98 Italian,
25 Portuguese and 163 Spanish RMBS deals, and 47 Italian,
5 Portuguese and 72 Spanish ABS deals.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF394604
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, the following information:
- Lead analyst
- Key Rationale for Action / Review Placement and Rating Constraint(s)
- Principal Methodology
- Person Approving the Credit Rating
- Releasing office
- Loss and Cash Flow Analysis
- Stress Scenarios
RATINGS RATIONALE
RATING UPGRADES
The main drivers behind today's upgrades are (1) the reduced country
risk as reflected by the increase in the maximum achievable rating in
Spain, Italy, Ireland and Portugal, and principally
for RMBS (2) reduction in the portfolio credit enhancement (CE) following
the removal of minimum country requirements, and (3) reduction in
the expected loss (EL) assumption.
Moody's analysis incorporates the revisions, when needed,
of EL 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. The counterparty risk
exposure as well as the sensitivity test to key collateral assumptions
and borrower concentration have constrained the upgrades in 164 tranches.
See the detailed list of rating actions for more details on the constraining
factors, if any.
PLACEMENT ON REVIEW
The review for upgrade reflects the increase in the maximum achievable
rating, and, for the RMBS transactions, Moody's revision
of the portfolio CE.
The review for downgrade reflects the deterioration in the portfolio performance.
As part of the review, Moody's will assess updated loan-by-loan
information on the securitised pools to determine the portfolio CE following
the update to its ABS and RMBS rating methodologies and the removal of
the minimum portfolio CE requirement for transactions affected by this
methodology change. The revision of portfolio CE assumptions,
together with the increased country ceiling, will define the transactions'
loss distribution and will be an integral part in determining the affected
notes ratings, post-review. During the review process,
Moody's will also factor in its analysis any potential linkage of transactions
to relevant counterparties, such as servicers, account banks
or swap providers.
RATING DOWNGRADE
Moody's downgraded one tranche in one Portuguese RMBS because the
CE for the notes is not sufficient to mitigate the increased EL assumptions.
AFFIRMATIONS
Moody's has also affirmed the ratings of the notes where the benefit
of the increased country ceiling was fully offset by counterparty risk
exposure, and/or the current CE 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 Spain,
Italy, Portugal and Ireland. As a result, the maximum
achievable ratings for covered bonds and structured finance transactions
were increased to Aa1 from Aa3 for Ireland, to Aa2 from A2 for Italy,
to A1 from A3 for Portugal, and to Aa2 from A1 for Spain.
--- REDUCTION IN PORTFOLIO CE
On 20 January, Moody's announced that the minimum portfolio
CE is no longer applicable for most EMEA markets following the updates
to its ABS and RMBS rating methodologies: (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_316183).
This resulted in a reduction of the portfolio CE in 75 RMBS in Spain and
Portugal and had no impact on the ABS deals. For RMBS specifically,
the MILAN CE also incorporates the changes to (1) the portfolio concentration
adjustments contained within Moody's Individual Loan Analysis (MILAN)
model and the scale of these adjustments (for all markets); and (2)
the scale of certain other adjustments contained within the MILAN model.
The downward revision to the Milan CE, together with the relevant
revised country ceiling define the transaction's loss distribution
and will be an integral part in determining the affected notes'
ratings through Moody's cash flow models. The reduction in
Milan CE contributed to the upgrade of 204 RMBS notes.
--- REVISION OF EXPECTED LOSS
As part of the rating action, Moody's reviewed the collateral
performance of the securitised pools and incorporated the revision of
EL assumptions into its analysis.
--- 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 note ratings,
Moody's ran stressed scenarios in cash flow models before upgrading
the relevant notes.
The stressed scenarios assume (1) a 25% or 50% increase
in the EL assumptions for RMBS, depending on the current level of
EL and similar stresses for the default probability assumption for ABS;
and (2) a 20% increase in the MILAN CE/portfolio CE assumption.
The ratings were upgraded when the negative rating impact resulting from
the above test was within the sensitivity tolerance. The sensitivity
analysis to Moody's key collateral assumptions resulted in limiting
the potential upgrade of 69 tranches in Irish RMBS, Spanish and
Italian ABS and RMBS deals.
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. This sensitivity
analysis resulted in limiting the potential upgrade of 13 tranches in
Spanish and Italian ABS deals.
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 CE; and (4) deterioration in the credit
quality of the transaction counterparties.
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.
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Carole Bernard
Vice President - Senior 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
Senior Vice President/Manager
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 actions on Irish, Italian, Portuguese, Spanish ABS/RMBS deals
