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Announcement:

Moody's updates on Italian RMBS transaction Malatesta Finance S.r.l. following purchase of additional portfolio and other amendments.

08 Feb 2011

Approximately 238.2 million of debt securities affected.

Milan, February 08, 2011 -- Moody's Investors Service said today that it has reviewed the following changes in the SPV Malatesta Finance S.r.l. ("Malatesta"): (i) most of the principal collections collected since the closing have been used to purchase a new portfolio of mortgage backed loans, (ii) the target cash reserve has been increased and (iii) some counterparties have been changed. Moody's has concluded that these amendments have no negative impact on the rating of the notes.

As usual for Italian RMBS transactions the principal that is collected from the portfolio during the first 18 months (the lock-up period) is accumulated and not used to amortise the notes. Instead of using the accumulated principal to amortise the Class A Notes, Malatesta has used most of it, more precisely €50.4 million, to buy a new portfolio of residential and commercial mortgage loans from the two originators Cassa di Risparmio di Cesena S.p.A. "CRC" (Baa1/P-2) and Banca di Romagna S.p.A. "BdR" (NR, controlled by CRC). Moody's has received the loan-by-loan data for the additional portfolio and updated loan-by-loan data for the incumbent portfolio. Moody's has therefore been able to analyse the new comprehensive pool.

The expected portfolio loss (EL) has been increased to 2.5% from 2.2% of the asset balance and the MILAN Aaa required Credit Enhancement has increased to 15% from 10.72%. 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 lower than the Italian average for mixed residential and commercial pools, are: (i) eleven years of vintage data for defaults split by borrower type (residential and commercial) showing very low default rates compared to the Italian average, (ii) the increase of the market wide default rate for mortgage loans for the region of Emilia-Romagna since 2008 and considering the current and estimated future macroeconomic conditions in Italy the vintage data has been qualitatively adjusted, (iii) the different characteristics of the commercial loans, such as the sector the company is active in, the macro economic outlook, the seasoning of the loans and the payment frequency, as better described in the report "Refining the ABS SME Approach: Moody's Probability of Default Assumptions in the rating analysis of granular Small and Mid-sized Enterprise portfolios in EMEA", published in March 2009 and, (iv) the vintage data for recoveries split by type of borrower.

Although the residential part of the pool has an average seasoning of 5 years and a similar weighted average loan-to-value as other Italian residential mortgage pools the MILAN number is higher than the average. The main reasons for the increased MILAN number are: (i) for around 20% of the pool Moody's has received an updated valuation of the property and not as usual the original full valuation; Moody's has applied a 50% haircut on those updated values since a sample showed that on average the new values were 40% higher than the original ones, (ii) for around 26% of the pool the property type was missing, (iii) for almost 42% the occupancy type was missing, (iv) for 33% the loan purpose was missing and (v) Moody's has not received any month current data.

The MILAN number for the commercial pool has been estimated by running CDO ROM, which generated a loss distribution from which a MILAN number for the commercial pool has been implied. The implied MILAN number is lower than the average seen in other commercial sub-portfolios mainly because the pool is granular both with respect to borrowers and sectors. The blended MILAN number of 15% is slightly lower than for comparable transactions with mixed portfolios.

As mentioned above Malatesta only paid around €50.4 for the portfolio although the principal outstanding balance and accrued interest of the additional portfolio was €62.7 million. The difference between the principal balance and what Malatesta paid, €12.3 million, will be paid as deferred purchase price ("DPP") to the originators (CRC and BdR) once the Class A Notes have been fully redeemed. The DPP has therefore implicitly, together with the collections from the portfolio, been used to amortise the Class A Notes with €12.5 million and resulted in almost doubling the Cash Reserve to €6.8 million (3% of the Class A Notes) from €3.6 million (1.5% of the Class A Notes at closing). The credit enhancement under the Class A has thereby increased to around 19% of the portfolio balance from 14.3% at closing.

The Issuers accounts have been moved from Monte Dei Paschi di Siena S.p.A. (A2/P-1) to Bank of New York Mellon SA, London branch (Aa2/P-1).

The Computation Agent is the entity that prepares the Payment Report and delivers it inter alia to the Paying Agent, Bank Of New York Mellon, Luxemburg SA (Aa2/P-1), which do the payments to the note holders and other transaction parties. The Computation Agent also prepares the Investor Report. Malatesta has appointed Accounting Partners S.r.l. ("AP") as Computation Agent replacing KPMG Fides Servizi di Amministrazione S.p.A. The Bank of New York Mellon, London ("BONY") rated (Aaa/P-1) has at the same time been appointed as back-up Computation Agent and in case AP would not deliver the Payment Report on the Calculation Date (the 20th of January, April, July and October) then BONY will prepare it and deliver it to the Paying Agent at least four business days before the Payment Date. Moody's considers that (i) the presence of BONY as back-up and the very short time line within which it contractually should prepare the Payment Report in case AP fails to prepare it, (ii) the fact that in case the Servicer would not send the Servicer Report in time to the Computation Agent the latter should anyway prepare a Payment Report and rely on estimates, (iii) the fact that if the Servicer CRC's rating would fall below Baa3 or be withdrawn a back-up servicer will be appointed and (iv) the enhanced Cash Reserve provides enough liquidity to pay interest on the notes and senior fees for around 6 months even under a stressed EURIBOR scenario mitigates the operational risks, as described in "Global Structured Finance Operational Risk Guidelines", December 2010.

Although the EL and the MILAN Aaa Credit Enhancement has increased as a function of the purchase of the additional portfolio, in Moody's opinion the combination of (i) the increase in total credit enhancement under the Class A notes to 19% from 14.3%, mainly coming from the DPP, (ii) the enhancement of the liquidity in the deal following the almost doubling of the Cash Reserve to 3% of the Class A Notes Balance from 1.5% of the Class A Notes balance at closing, (iii) the appointment of the back-up servicer at loss of Baa3 and the fact that the Computation Agent can prepare the Payment report even if it has not received the Servicer Report and (iv) that BONY is acting as back-up computation agent and can step in and prepare the Payment Report with very short notice, the purchase of the new portfolio and the other structural and counterparty amendments will not, in and of itself, result in a reduction or withdrawal of the current rating of the notes.

Moody's will closely monitor the performance of Malatesta. 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 and "Moody's approach to Rating the CDOs of SMEs in Europe", published in February 2007 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

Milan
David Bergman
Asst Vice President - Analyst
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

Milan
Michelangelo Margaria
VP - Senior Credit Officer
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's updates on Italian RMBS transaction Malatesta Finance S.r.l. following purchase of additional portfolio and other amendments.
No Related Data.
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