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Global Credit Research - 14 Feb 2011
Approximately 680.6 million of debt securities affected.
Milan, February 14, 2011 -- Moody's Investors Service said today that it has reviewed the following
changes for the transaction Grecale ABS S.r.l. --
Series 2008 ("Grecale"): (i) the margin on the Notes
have been increased to 155 bps per annum from 60 bps per annum,
(ii) the margin over three-month EURIBOR guaranteed by the swap
counterparty has been increased to 130 bps per annum from 100 bps per
annum, (iii) the Originator UGF Banca S.p.A.
("UGF") (Baa2/P-2) has repurchased defaulted and severely
delinquent loans in order to clean the implicit unpaid principal-deficiency-ledger
("PDL") and (iv) it has been introduced that the Calculation Agent can
make estimates in order to prepare the Payment Report in case the Servicer
Report is not available on time; Moody's has concluded that
these amendments have no negative impact on the rating of the notes.
The Noteholder has by a written resolution instructed Grecale to increase
the margin on the Class A Notes to 155 bps per annum from 60 bps per annum.
In order to mitigate the increased interest cost on the Notes for the
SPV the swap counterparty, BNP Paribas SA (Aa2/P-1),
has increased the guaranteed margin over the three-month EURIBOR
that it has to pay Grecale to 130 bps per annum from 100 bps per annum
over a notional that is the average loan portfolio during each period,
including performing and delinquent loans and only excluding defaulted
loans. The Issuer, Grecale, will continue to pay what
it actually collects from the portfolio each period.
Grecale has so far experienced relatively high levels of defaults,
with the cumulative default rate at end of December 2010, or around
19 months since the closing in May 2008, already at around 3.3%
of the initial pool balance. The Cash Reserve covers only interest
on Class A and items with higher priority and since the excess spread
was not sufficiently high a substantial implicit unpaid PDL, in
excess of 25 million (or more than 2.4% of the initial
pool balance) had been created. In order to clean the implicit
unpaid PDL the Originator, UGF, has repurchased all loans
that have been classified as defaulted according to the transaction definition,
i.e. at least one instalment more than 180 days in arrears,
but not yet defaulted in accordance with Bank of Italy's sofferenza
definition and it has also repurchased loans that were between 140 to
180 days in arrears. UGF has paid around 26.4 million
for the defaulted loans and it has purchased delinquent loans for around
5.0 million. For Grecale this recovery of most of
the defaulted loans have made it possible to clean the implicit unpaid
PDL and as per the latest payment report the notes backed by the assets
and the assets are now equal in size, confirming that the implicit
PDL has been fully cleaned. Moody's has considered the following
mitigants to the potential claw back risk in case UGF would become insolvent:
(i) UGF is rated Baa2/P-1, (ii) UGF has confirmed that the
purchase price was a fair market price, (iii) UGF has delivered
the following documents to Grecale 1) a solvency certificate signed by
a proxy-holder of UGF; 2) a good standing certificate,
stating that no insolvency proceeding is pending against UGF, issued
by the Companies' Register and 3) a certificate issued by the court,
stating that no insolvency proceeding has been commenced or threatened
against UGF during the past five years; and (iv) the loans that are
defaulted in accordance with Bank of Italy's sofferenza definition,
and for which the market value is more difficult to ascertain, have
not been repurchased by UGF.
As has been described above Grecale has experienced relatively high defaults
during the first 19 months since inception. This could partially
be explained by the very stringent default definition that is used in
the transaction, which is one of the shortest default definitions
for Italian RMBS transactions. Moody's has both received
the details of the defaulted loans and the updated loan-by-loan
data for the portfolio. Moody's has therefore been able to
make an updated analysis of the transaction.
The expected portfolio loss (EL) has been increased to 3.7%
from 1.7% of the initial pool balance and the MILAN Aaa
required Credit Enhancement has increased to 9% from 6.84%.
The EL and the MILAN Aaa Credit Enhancement served as input parameters
for Moody's cash flow model, which is based on a probabilistic
lognormal distribution as described in the report "The Lognormal
Method Applied to ABS Analysis", published in September 2000.
The key drivers for the portfolio expected loss, which is higher
than the Italian average RMBS transaction, are: (i) eight
years of vintage data for defaults, using the less stringent sofferenza
as default definition, (ii) the increase of the market wide default
rate for mortgage loans for Italy since 2008 and consideration of the
current and estimated future macroeconomic conditions in Italy which resulted
in a qualitative adjustment to the vintage data, (iii) the performance
so far of the transaction and particularly the differences between loans
classified as defaulted in the transaction but not yet as in sofferenza
has served as further input for making an additional qualitative adjustment
of the vintage data and (iv) the vintage data for recoveries showing average
recovery rates and recovery lags for the Italian market.
Although the seasoning has increased and the weighted average loan-to-value
has decreased since inception the MILAN number has increased to an higher
than average 9% from 6.84% at closing The main reasons
for the increased MILAN number are: (i) at closing some borrowers
were classified by UGF as employed although they in reality were sole
proprietorships (Ditta Individuale). The analysis of the defaulted
loans shows that for this kind of borrowers the default rate has been
more than twice the one for employed borrowers and therefore Moody's
has considered this in the updated analysis; (ii) borrowers without
Italian citizenship have had a default rate during the first 19 months
which is more than three times higher than Italian citizen and therefore
Moody's has considered this in the updated analysis and (iii) Moody's
has also considered that there could be other characteristics of the pool
which has not been properly captured in the MILAN model and therefore
the final MILAN number has been qualitatively adjusted to also consider
the very high default rates that this transaction has experienced so far.
Moody's considered in its analysis several mitigants for operational
risks ( as described in "Global Structured Finance Operational Risk
Guidelines", December 2010 ), namely that(i) the Servicer,
UGF, is rated Baa2/P-2, (ii) in case the Servicer would
not send the Servicer Report in time to the Calculation Agent the latter
should anyway prepare a Payment Report and rely on estimates, (iii)
the calculations for the swap will be made on the basis of the last available
Servicer Report, (iv) if the Servicer UGF's rating would fall
below Baa3 or be withdrawn a back-up servicer will be appointed,
and letters telling the borrowers to pay directly into the Issuer's
collection account will be prepared, (v) the representative of the
Noteholders, Securitisation Services S.p.A.
(NR) is obliged to facilitate the search for a back-up servicer
in case it would need to be appointed under the previous point,
(vi) UGF will have to send the already prepared letters, communicating
to the borrowers that they have to pay directly to the Issuer's
collection account in case UGF's rating would fall below Ba2 or
be withdrawn; (vii) the Cash Reserve, provides enough liquidity
to pay interest on the notes and senior fees for around 10 months even
under a very stressed EURIBOR scenario.
Moody's will closely monitor the performance of Grecale ABS S.r.l.
-- Series 2008. Moody's ratings address only the credit
risk associated with the transaction. Other non-credit risks
have not been addressed, but may have significant effect on yield
to the investors.
The principal methodologies used in rating and monitoring the transaction
are: "Moody's Approach to Rating Italian RMBS"
published in December 2004 which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research and
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition Moody's publishes
a weekly summary of structured finance credit ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Moody's Italia S.r.l
Moody's updates on Italian RMBS transaction Grecale ABS S.r.l. -- Series 2008 following increased notes margin and other changes
Corso di Porta Romana 68
No Related Data.
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