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24 Nov 2010
EUR 87.5 million of debt securities affected
Frankfurt am Main, November 24, 2010 -- Moody's Investors Service has today upgraded the following classes of
notes issued by Asset-Backed European Securitisation Transaction
Two S.r.l. (ABEST 2):
Issuer: Asset-Backed European Securitisation Transaction
....EUR37.5M B Notes, Upgraded
to Aaa (sf); previously on Oct 1, 2010 Aa3 (sf) Placed Under
Review for Possible Upgrade
....EUR50M C Notes, Upgraded to Aa3
(sf); previously on Oct 1, 2010 Baa1 (sf) Placed Under Review
for Possible Upgrade
Today's rating actions conclude Moody's review of this transaction and
take into consideration the better-than-expected collateral
The ratings take into account: (i) the credit quality of the underlying
auto-loan receivables portfolio, on the basis of which Moody's
determined its cumulative default and recovery rate and its volatility
assumption; and (ii) the build-up of credit enhancement within
the portfolio. The ratings also consider the transaction structure
as assessed in Moody's cash flow analysis. The expected cumulative
default rate and volatility are the two key parameters that Moody's uses
to calibrate its default distribution curve, which in turn is used
in the cash-flow model to rate European ABS transactions.
The collateral performance trend outperforms Moody's negative sector outlook
for Italian ABS (EMEA ABS & RMBS Asset Performance Outlooks,
July 2010). As of the last performance report (October 2010),
cumulative defaults stood at 0.82% of total securitised
assets compared with an initial assumption of 2.25%.
This figure is well below the level that Moody's had originally expected
for the current seasoning of the portfolio, given the current pool
factor of total securitised assets of 9%. The initial credit
enhancement levels of the class A, B and C notes --
provided by subordination and overcollateralisation -- have
increased substantially since closing to reach 42%, 31%
and 16% respectively, as of the last reporting date,
compared with 11%, 8% and 4% at closing.
The rise in credit enhancement was also supported by prepayment gains
that resulted in a built-up of overcollateralisation. Indeed,
the receivables were purchased on a net present value basis and discounted
at an artificial discount rate, and until today prepaying loans
with interest rates lower than their discount rate exceeded prepaying
loans with higher interest rates than their discount rate.
KEY REVISED ASSUMPTIONS: CUMULATIVE DEFAULT, VOLATILITY AND
Moody's has reassessed its lifetime default expectation for the pool of
ABEST 2 factoring in the collateral performance to date. The transaction
has outperformed the performance expectations that Moody's assumed at
Taking into account the current amount of defaulted loan receivables and
completing a roll-rate and severity analysis for the non-defaulted
portion of the portfolio, Moody's has adjusted its initial default
rate expectations to a mean of 1.08% of the total securitised
pool balance, compared with the original assumption of 2.25%.
This revised cumulative default rate translates into 3.10%
of the current pool balance for the remaining life of the portfolio and
also accounts for the risk of prepayment loss that is present within this
transaction if loans with actual interest rates being higher than their
discount rate prepay. In its analysis, Moody's stressed
the prepayment assumptions on those loans by doubling its base assumption.
Moody's kept the recovery rate at 12.5% based on historical
levels. Given the economic conditions in Italy, Moody's expects
these levels to remain stable in the near term. Moody's increased
its volatility assumption to 45% considering the decreasing diversification
of the amortising portfolio. Moody's understands volatility as
the ratio of the standard deviation and the cumulative mean default-rate
assumptions of a portfolio. The constant prepayment rate was reduced
ABEST 2 closed in November 2005 and securitised Italian auto loan receivables
originated by FGA Capital S.p.A. (rated Baa3),
a joint venture between Crédit Agricole S.A (rated Aa1/P-1)
and Fiat Group Automobiles S.p.A., a subsidiary
of Fiat S.p.A. (rated Ba1/review for possible downgrade).
The initial three-year revolving period ended in January 2009.
The principal methodology used in this rating were The Lognormal Approach
applied to ABS Analysis published in July 2000 and Revising Default/Loss
Assumptions Over the Life of an ABS/RMBS Transaction published in December
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
Moody's used its excel based cash-flow model Moody's ABSROM™
as part of its quantitative analysis of the transaction. Moody's
ABSROM™ model enables users to model various features of a standard
European ABS transaction -- including the specifics of the
default distribution of the assets, their portfolio amortisation
profile, yield, or recoveries and replenishments during the
revolving period, as well as the specific priority of payments,
triggers, swaps and reserve funds on the liability side of the ABS
structure. Moody's ABSROM™ User Guide, available on
Moody's website, covers the functionality of the model and provides
a comprehensive index of the user inputs and outputs.
The combination of the key updated assumptions together with the current
credit enhancement levels resulted in the upgrade of the class B and class
C notes of ABEST 2. Moody's analysed various sensitivities of cumulative
default rates to test the robustness of its revised ratings. For
instance, ABEST 2 class B notes would withstand an increase of the
cumulative default rate on the current balance up to 5.10%
whereas class C notes can withstand an increase up to 4.60%
without any lowering of the quantitative/model-indicated rating
outcome (base case).
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Additional research, including the pre-sale report for these
transactions and reports for prior transactions, are available at
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.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's upgrades ABEST 2's class B and C Italian auto-loan ABS notes
An der Welle 5
Frankfurt am Main 60322
No Related Data.
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