NOTE: On July 31, 2017, the List of Affected Credit Ratings accessible via hyperlink from this press release was corrected as follows: The Moody’s Deal ID for ISIN IT0005212821 was changed to 825097663. Revised release follows.
Madrid, July 27, 2017 -- Moody's Investors Service ("Moody's"), has today taken rating actions
on ABS-SME and Leasing transactions across Europe, the Middle
East and Africa (EMEA), after the rating agency revised its approach
to assessing counterparty risks in structured finance (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1038135).
Specifically, Moody's has upgraded 7 notes, put on review
for upgrade 1 note and 18 notes have been put on review for downgrade
pending additional information, across 14 EMEA ABS-SME deals,
and 5 EMEA Leasing deals.
Moody's has consolidated and replaced five cross sector credit rating
methodologies with one methodology describing Moody's approach to counterparty
risks in structured finance.
The consolidation and revision of the structured finance rating methodology
prompted today's rating actions on the ABS-SME and Leasing notes.
Please refer to the announcement of the consolidation to Moody's global
approach to rating structured finance transactions released on (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_368938).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF455444
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF455444
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, Moody's disclosures on the following items:
Principal Methodologies
Today's rating actions reflect the updates to Moody's structured finance
rating methodologies with respect to assessing 1) swap counterparty exposures,
2) financial disruption risks, 3) commingling risk, 4) account
bank and investment risk and 5) deposit set-off risks.
The updates to the structured finance rating methodologies have mixed
rating impact on EMEA ABS-SME and Leasing transactions.
Swap counterparty exposures:
Moody's has updated its cross sector methodologies with respect to assessing
the exposures to swap counterparties.
In particular, Moody's changed the reference to the rating triggers
level and the ratings of the swap counterparties (or guarantor).
Moody's now uses the senior unsecured debt rating, instead of the
counterparty risk assessment (CR assessment) when the originator of the
structured finance transaction is the same entity as the swap counterparty
(or guarantor) and the swap counterparty's obligations are not likely
to be fully collateralized.
Moody's also reduced the value of certain notching uplifts in connection
with swap subject to margining requirements.
As part of the updated methodology, Moody's changed the sequence
of the analytical steps for swap counterparty exposure. Moody's
now adds the expected loss relating to the swap counterparty exposure
before the application of ratings caps.
The revision of the methodologies with respect to the assessment of swap
counterparty exposure has an overall limited rating impact on the EMEA
ABS-SME and Leasing transactions.
Financial disruption risks:
Moody's now uses the term financial disruption risk, instead of
operational risk, when referring to the risk that one or more of
the parties to a securitization will encounter financial distress and
not be able to perform its duties as required.
Moody's now follows a three-step analysis to determine financial
disruption risks: 1) assessment of the "durability"
of the entity based on credit quality and other factors, 2) assessment
of the "transferability" of servicing or other duties and
3) consideration of mitigants and rating caps when applicable.
Moody's revised some of its criteria for the analysis of financial disruption
risks and raised the rating caps for high transferability cases,
for instances where non-investment grade servicers can transfer
their duties to other parties, but do not necessarily have strong
mitigants in place. Moody's now gives more benefit to mitigants
when the counterparties act in multiple roles, for instances where
the servicer and cash manager are the same party, and back-up
arrangements exist for one or both roles. Moody's also refined
its approach for small and/or new sponsor-servicers.
The revision of the methodology with respect to financial disruption risk
has an overall neutral rating impact on the EMEA ABS-SME and Leasing
transactions.
Commingling risk:
Moody's clarified its global approach to commingling risk in three schematic
steps. The rating agency now 1) assesses whether commingling risk
exists based on the jurisdiction's legal and regulatory framework and
other structural mitigants 2) determines the likely commingling exposure
based on the servicer's credit quality and 3) incorporates an expected
commingling loss into the credit analysis.
Moody's does not incorporate expected commingling loss if the risk is
deemed immaterial such as cases where the servicer is rated at or above
Baa2 and the exposure is limited to one month of lost collection.
The changes to the methodologies with respect to commingling risk have
a limited rating impact on the EMEA ABS-SME and Leasing transactions.
Account bank and investment risk:
Moody's streamlined its approach to assessing account bank and temporary
investment risk as part of the consolidated structured finance methodology.
Moody's now 1) assesses the uplift benefit for transfer trigger,
2) determines the risk exposure and 3) determines the rating cap to apply
to the structured finance transactions.
Moody's does not proceed to step 2 and 3 if the account bank and temporary
investment risk is mitigated or the adjusted rating (after uplift) is
at least Aa3 for the account bank or A2 for investments. Moody's
now considers transfer periods of up to 60 days to determine whether or
not a transfer trigger is effective. Moody's now uses two types
of rating caps in step 3 based on the size of the possible exposure to
an account bank or an investment ("standard" versus "strong"
exposure). The rating agency introduces a new rating cap table
to determine the rating caps for securities if account bank or investment
related risks are not sufficiently mitigated in step 3.
The changes of the methodologies with respect to account bank and investment
risk have a mixed rating impact, although mostly negative,
on the EMEA ABS-SME and Leasing transactions. For some transactions
it is expected that further clarification on the application of eligible
Investment and account bank criteria may mitigate the impact, these
transactions will be placed on review for downgrade rather than downgraded
directly.
Deposit set-off risk:
Moody's revised its cross sector methodologies with respect to assessing
the deposit set-off risk.
Moody's distinguishes between deposit covered by an insurance system and
uninsured deposit as part of its analysis of deposit set-off risk.
Moody's no longer performs a separate analysis of deposit set-off
risk for insured deposits, as the risk of deposit freeze (viewed
as the risk of non-payment) is reflected in the local currency
country risk ceiling for deposit.
As part of the updated methodology, Moody's does not factor any
incremental loss into the analysis for granular pools.
Moody's now assumes that the exposure at risk is a constant percentage
of the outstanding portfolio throughout the life of a transaction.
Moody's now fixes the deposit run-off assumptions for corporate
or corporate-like depositors at 25%.
The changes to the methodologies with respect to deposit set-off
risk have a limited rating impact on the EMEA ABS-SME and Leasing
transactions.
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.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF455444
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, Moody's disclosures on the following items:
- Lead analyst
- Key Rationale for Action
- Person Approving the Credit Rating
- Releasing office
- Constraining factors on the ratings
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.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Angel Jimenez
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
Client Service: 44 20 7772 5454
Mehdi Ababou
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
