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Global Credit Research - 26 Jul 2010
Approximately EUR 3,440.5 million of securitised debt rated
Frankfurt, July 26, 2010 -- Moody's Investors Service said today that it has reviewed an amendment
to the structure of UBI Lease Finance 5 S.r.l. (UBI
Lease) as well as the transaction's performance to date and has
taken no action as a result of this analysis.
Moody's has been notified of a proposed amendment of the transaction documentation,
enabling the originator, UBI Leasing S.p.A.,
to repurchase defaulted and highly delinquent loans from the issuer.
Highly delinquent loans are defined as being in arrears by five or more
instalments. The repurchase price will be equal to UBI Lease's
book value of the repurchased loans and will be used as principal collections
received by the issuer and applied according to the order of payments.
On 30 July 2010, UBI Lease will repurchase EUR98 million of loans
for a purchase price of EUR88.5 million. The amendment allows
for further repurchases of defaulted and/or highly delinquent loans up
to an annual amount of EUR 150 million with a cumulative cap at 10%
of the initial outstanding balance. The repurchased loans must
achieve a minimum purchase price of 90% for delinquent loans and
60% for defaulted loans on average on each repurchase date.
Moody's has been informed by the servicer that the noteholders have
approved the amendment via a resolution on 23 July 2010 and that the amendment
was signed subsequently on 26 July 2010.
As part of its analysis, Moody's took into account the current performance
of the leasing receivables. Periodic defaults and delinquencies
showed some stabilisation in the last reporting period, but the
levels observed are worse than initially expected at closing of the transaction.
The amount of cumulative defaults as of the last reporting date in April
stood at 2% of the original balance, compared to 0.4%
in June 2009 and expected cumulative defaults of 3.1% over
the lifetime of the transaction at closing in November 2008. Total
delinquencies increased to 5.0% from 4.5%
from June 2009 to April 2010.
During its analysis, Moody's also assessed macro-economic
indicators and information made available from the servicer, UBI
Leasing S.p.A. Moody's considered the forecasts for
the main macro-economic drivers behind a collateral deterioration,
in particular, corporate insolvencies and GDP contraction.
Corporate insolvencies rose 20% in 2008 versus 2007 and another
35%-40% in 2009 compared to 2008. In 2010
Euler-Hermes expects business insolvencies to increase by 15%.
Italian GDP contracted unexpectedly in Q4 2009, following 0.6%
quarter-on-quarter growth in Q3 2009, when Italy's
economy emerged from five quarters of recession. The outlook for
Italy's economy growth is weak for 2010, before accelerating in
2011, with exports remaining the key growth driver.
Moody's considers the debtors in this transaction to be SME and
accordingly used its SME approach to determine the expected mean default
rate. Moody's first revised its assumption for the default probability
(DP) of the Italian SME debtors to an equivalent rating in the high B-range
for debtors operating in the building and real estate sector, and
in the Ba-range for non-real-estate debtors.
In addition, Moody's made DP adjustments to reflect the size of
the debtors' companies, notching down its rating proxy on a portion
of the debtors to reflect additional default risk associated with micro-sized
SMEs and self-employed borrowers.
Moody's equivalent rating for loans in arrears for more than 30 days was
also notched down depending on the length of time the loans had been in
arrears, and it was notched up for those performing loans not in
the building and real estate sector originated prior to 2006, depending
on their actual seasoning.
As a result of this analysis, the rating agency has increased its
assumptions for the cumulative mean default rate to 10% of the
current portfolio balance (which translates into 9.4% of
total securitised balance). The original expected gross default
rate was 3.1%.
The coefficient of variation, which was assumed to be 65.5%
at closing, has been updated to 49% to reflect the reduced
uncertainty. The recovery rate has been adjusted to 60%;
an increase from the 53% assumed at deal inception, to reflect
the minimum purchase price of 60% for defaulted loans as per the
The transaction is still in the 18-month lock-up period
and principal collected through this period will be used to amortise the
notes on the next interest payment date falling on 31 October 2010.
Due to the lock-up period, the current note balance is 100%
of initial note balance but principal collected standing on the issuer
account represents roughly 28% of the initial notes balance.
The increase in the default assumption has then been mitigated by the
increase in credit enhancement.
The last rating action on UBI Lease Finance 5 S.r.l.
was 28 November 2008, when the rating was assigned to the notes.
Below are the current notes and rating on the transaction.
- EUR3,440,500,000Class-A Asset Backed
Floating Rate Notes due April 2031, rated Aaa
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes.
The principal methodology used in rating and monitoring the transactions
is "The Lognormal Approach applied to ABS Analysis," published in
July 2000; "Multi-Pool Financial Lease-Backed
Transactions in Italy", published in June 2006; "Moody's
Approach to Rating Granular SME Transactions in Europe, Middle East
and Africa", published n June 2006; and "Revising Default/Loss
Assumptions Over the Life of an ABS/RMBS Transaction," published
in December 2008 and available on www.moodys.com in the
Rating Methodologies sub-directory under the Research & 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.
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.
VP - Senior Credit Officer
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's updates on UBI Lease Finance 5 S.r.l. Italian Leasing ABS following transaction amendment
No Related Data.
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