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Announcement:

Moody's updates review parameters for Greek structured finance transactions

23 Jun 2010

Continues ongoing review for possible downgrade

Paris, June 23, 2010 -- Moody's Investors Service today said that it is reviewing the increased operational risk inherent in Greek structured finance transactions, in light of the recent downgrade of Greece's government bond rating to Ba1 and the associated downgrade of nine Greek banks. The rating agency will take these factors into account in its on- going review for possible downgrade of 27 structured finance transactions backed by Greek pools. Moody's expects to conclude the review of the senior ratings of existing Greek ABS/RMBS and CDO transactions in the near future.

Moody's analysis of Greek structured finance transactions is based on the following:

• an assessment of the available credit enhancement given the expectations around the asset pool performance, considering a variety of loss scenarios;

• the exposure of the transactions to the banks providing operational services, swaps and liquidity.

Operational Risk and Liquidity

Given the recent downgrades of Greek banks, operational risk exposure and liquidity are central considerations in the ultimate rating levels achievable by Greek structured finance transactions. The rating agency believes that in certain situations this risk is more significant than the potential losses in the collateral pools.

Structured finance notes may be exposed to the risk of a payment disruption if the key transaction parties fail to perform their roles. Moody's will consider the impact of the weakened financial strength of the Greek banks on the operational aspects of all Greek structured finance transactions. Specifically, the focus will be on the identity of the various counterparties (both Greek and non-Greek banks) that hold key roles in each transaction (as servicer, cash manager, account bank, servicer, paying agent or swap counterparty) as well as on the efficiency of structural features in the current Greek banking environment, in order to determine the degree of linkage between the structured finance ratings and the sponsors' ratings.

Certain structural features are implemented in securitisation transactions to reduce the linkage between the structured finance ratings and the credit quality of the key parties to the transaction, in order to ensure the timely payment of interest even upon default of the transaction sponsor. Moody's views on operational risk are described in detail in a report entitled "Global Structured Finance Operational Risk Request for Comment" (published on May 6 2010). The particularly systemic nature of the challenges facing Greek banks presents a unique context for the consideration of operational risk mitigants for Greek structured finance transactions. As a result, Moody's is concerned that some of the de-linkage features that are traditionally incorporated in the Greek structured finance transactions may not sufficiently mitigate operational risk. For example, the appointment of a back-up servicer also domiciled in Greece would not completely remove operational risk.

Moody's notes that certain Greek transactions benefit from a combination of structural elements that are designed to facilitate timely interest payments in the event of a servicing disruption, even when an immediate transfer of the servicing is not possible. Those transactions benefit from substantial dedicated liquidity reserves that reside with Prime-1 rated banks which are accessible by an independent and highly rated cash manager. This cash manager is responsible to pay senior expenses, swap amounts (if any) and interest on the notes for a minimum period of six months; in the case the servicer report is not produced on time, the cash manager is able to make senior payments based on estimates.

Moody's believes that transactions, serviced by Greek banks which are rated as low as Ba1, could achieve senior ratings in the low single-A range if specific operational risk mitigants are in place to ensure timely payment of interest on the Notes. This assumes that the credit enhancement is sufficient to support an extreme loss scenario consistent with a single-A rating (see section on Credit Impact of Asset Pool Performance below). In the absence of these mitigants the transaction senior ratings are likely to be positioned in the Baa range. The Greek transactions serviced by subsidiaries of non-Greek banks would be assessed on a case-by case depending on Moody's assessment of the credit quality of the Greek subsidiaries.

Credit Impact of Asset Pool Performance

In order for Greek transactions to maintain ratings that are higher than the Greek government's Ba1 rating, the credit enhancement available to the notes must be sufficient to withstand severe collateral losses in stressed scenarios, including those related to a potential government and banking crisis. In these worst case scenarios, Moody's will consider loss assumptions of 25 to 30 percent (depending on LTV) for RMBS, 40 percent for consumer loans ABS, 45 to 50 percent for SME ABS and 50 percent for CDO transactions. These stress levels are consistent with single-A rating ranges on the structured transactions, given the operational risk constraints described above.

London
Katherine Frey
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Annick Poulain
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's updates review parameters for Greek structured finance transactions
No Related Data.
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