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29 Sep 2008
Moody's takes rating actions on four classes of RMBS notes issued by Lusitano Mortgages No. 3 plc
Approximately EUR 789.5 million of debt securities affected.
Milan, September 29, 2008 -- Moody's Investors Service has taken the following rating actions on the
notes issued by Lusitano Mortgages No. 3 plc ("Lusitano 3"):
- Class A Mortgage-Backed Floating-Rate Notes due
2047, current rating of Aaa confirmed;
- Class B Mortgage-Backed Floating-Rate Notes due
2047, current rating of Aa2 confirmed;
- Class C Mortgage-Backed Floating-Rate Notes due
2047, downgraded to Baa1 from A2;
- Class D Mortgage-Backed Floating-Rate Notes due
2047, downgraded to Ba3 from Baa2.
Lusitano 3 also issued a fifth class of notes. The Class E Mortgage-Backed
Floating-Rate Notes due 2047 were used to fund the cash reserve
originally and were not rated by Moody's.
All ratings of the above listed notes have been under review for possible
downgrade since 17 September 2008, when Moody's took a rating
action on the notes following the announcement of Lehman Brothers Holdings
Inc ("LBHI") that it intends to file a petition under Chapter 11 of the
U.S. Bankruptcy Code on 15 September. On the same
day, Moody's downgraded the senior ratings of LBHI, and those
of certain guaranteed subsidiaries, to B3 under review for further
downgrade from A2.
In the Lusitano 3 transaction Lehman Brothers Special Financing Inc.
has acted as interest rate cap provider. In its present review,
Moody's evaluated the role of the hedging counterparty and the possible
impact the downgrade has on the ratings of the notes. Moody's notes
that the interest rate cap agreement terminated on January 2008 and as
such there is no longer any LBHI related hedge exposures in Lusitano 3.
Therefore Moody's has today confirmed the ratings of the Class A and the
Class B notes.
The rating downgrades on the Class C and D notes issued by Lusitano 3
were prompted by worse-than-expected collateral performance.
The actions take into account the increased portfolio loss expectations
resulting from the relatively high delinquency and default levels shown
in the collateral performance. 44 months after issuance Lusitano
3's 90+ day delinquencies are at 2.32% of the
current portfolio balance, while defaults are at 1.79%
of the original portfolio balance with limited recovery to date.
In addition, the notes are slightly under-collateralised
due to the way the written-off loan provisioning mechanism works
in the structure. Indeed, loans are provisioned for during
the course of three consecutive years after default.
Moody's has assessed updated loan-by-loan information of
the outstanding portfolio to determine the increase in credit support
needed to address the current portfolio performance and to assess the
volatility of future losses. Taking into account the current amount
of cumulative defaults and completing a delinquency/default roll-rate
and severity analysis for the non-defaulted portion of the portfolio,
Moody's has adjusted its loss expectations for this portfolio to a range
of 1.4-1.6% of the original pool balance.
Lusitano 3 is Banco Espirito Santo's third RMBS transaction.
It closed in November 2004. The products securitised are first-lien
mortgage loans granted to individuals, all of whom are using these
loans to acquire, construct or refurbish residential properties
in Portugal. The WALTV at closing was 73.08% and
currently it is 66.9%. The current pool factor is
Moody's initially analysed and monitors this transaction using the rating
methodology for EMEA RMBS as described in the Rating Methodology reports
"Moody's Approach to Rating Portuguese RMBS" published in October 2004.
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transaction. In Moody's opinion,
the structure allows for timely payment of interest and ultimate payment
of principal with respect to the Notes by the legal final maturity.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
Moody's will continue to monitor the performance of this transaction
closely. For updated monitoring information, please contact
email@example.com or please also refer to Performance
Overview published quarterly on Lusitano 3.
Please also see the Index report "Portuguese RMBS Q2 2008 Indices" which
can be found on www.moodys.com under the Credit Index category
of Structured Finance research.
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
No Related Data.
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