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Rating Action:

Moody's upgrades the ratings of three Italian lease ABS transactions from Banca Italease

11 Jun 2014

NOTE: On February 06, 2015, the press release was corrected as follows: In the Ratings Rationale section, in the first sentence of the first paragraph, changed “rating downgrade” to “rating upgrade.” Revised release follows.

London, 11 June 2014 -- Moody's Investors Service has today upgraded by one to three notches the ratings on the senior and mezzanine tranches issued by Italfinance Securitisation Vehicle S.r.l. (ITA 8), Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9) and Leasimpresa Finance S.r.l. (LF 2). At the same time, Moody's affirmed the ratings on the notes issued by Italease Finance S.p.A. Series 2005-1 (ITA 7). Today's actions are due primarily to (1) an improvement in the creditworthiness of the originator and servicer, Banca Italease S.p.a (Banca Italease, deposits Ba3 negative, bank financial strength rating E+/baseline credit assessment b3), which supports the transactions through its obligation to repurchase defaulted loans in ITA 8, ITA 9 and LF 2 at a minimum price; and (2) an increase of credit enhancement for the notes as a result of deleveraging.

These four transactions are asset-backed securities transactions backed by small ticket leases originated by Banca Italease .

Issuer: Italease Finance S.p.A. Series 2005-1 (ITA 7)

....EUR 447.9M Class A2 Notes, Affirmed A2 (sf); previously on Jul 12, 2013 Affirmed A2 (sf)

....EUR 45.4M Class B Notes, Affirmed A2 (sf); previously on Jul 12, 2013 Affirmed A2 (sf)

....EUR 18.7M Class C Notes, Affirmed A3 (sf); previously on Jul 12, 2013 Affirmed A3 (sf)

Issuer: Italfinance Securitisation Vehicle S.r.l. (ITA 8)

....EUR 959M Class A Notes, Affirmed Baa2 (sf); previously on Jul 12, 2013 Downgraded to Baa2 (sf)

....EUR 83M Class B Notes, Upgraded to Ba2 (sf); previously on Jul 12, 2013 Downgraded to Ba3 (sf)

....EUR 56M Class C Notes, Upgraded to Ba3 (sf); previously on Jul 12, 2013 Downgraded to B2 (sf)

....EUR 18.5M Class D Notes, Upgraded to Ba3 (sf); previously on Jul 12, 2013 Confirmed at B3 (sf)

Issuer: Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9)

....EUR 1442.4M Class A Notes, Affirmed Baa3 (sf); previously on Jul 12, 2013 Downgraded to Baa3 (sf)

....EUR 125M Class B Notes, Upgraded to Ba2 (sf); previously on Jul 12, 2013 Downgraded to Ba3 (sf)

....EUR 84.3M Class C Notes, Upgraded to B1 (sf); previously on Jul 12, 2013 Downgraded to B2 (sf)

....EUR 27.9M Class D Notes, Upgraded to B2 (sf); previously on Jul 12, 2013 Downgraded to B3 (sf)

Issuer: Leasimpresa Finance S.r.l. (LF 2)

....EUR 931.5M Class A Notes, Upgraded to A3 (sf); previously on Jul 12, 2013 Downgraded to Baa2 (sf)

....EUR 57.2M Class B Notes, Upgraded to Baa2 (sf); previously on Jul 12, 2013 Downgraded to Ba1 (sf)

....EUR 10.3M Class C Notes, Upgraded to Baa3 (sf); previously on Jul 12, 2013 Downgraded to Ba2 (sf)

RATINGS RATIONALE

Today's rating upgrade primarily reflects the upgrade of Banca Italease to Ba3 from B2 on 29 April 2014 (see https://www.moodys.com/research/PR_297754) and the increase of credit enhancement for the notes as a result of deleveraging since the previous rating action.

-- NOTES' RATINGS ARE LINKED TO BANCA ITALEASE'S RATINGS THROUGH ITS OBLIGATION TO REPURCHASE DEFAULTED LOANS

ITA 8, ITA 9 and LF 2 have a strong linkage with the originator, Banca Italease. The observed performance of these transactions, which is so far in line with our assumptions, is conditioned by the obligation of the originator to repurchase defaulted loans (for a minimum price of 75% of their outstanding amount). Following the two-notch upgrade of Banca Italease on 29 April 2014, the likelihood of the repurchase performance increased, resulting in a rating impact on the tranches listed above.

When modelling cash flows, Moody's maintained the recovery rate assumptions of ITA 8, ITA 9 and LF 2 at 75% based on Banca Italease's repurchase obligation. However, Moody's assumed that the recovery rate would go down to 15% upon Banca Italease's default. Legal uncertainty regarding the rights of the special purpose vehicles to recover amounts on the lease contracts upon originator's default drives this assumption. This feature increases the dependence of the notes' ratings on Banca Italease's rating.

Moody's analysis also took into account borrower concentration given that the 10 biggest debtors represent 10% to 20% of the pool balance in these three transactions.

In ITA 7, the credit enhancement available in the form of subordination and reserve fund under tranche A2 (82.0%), tranche B (78.2%) and tranche C (76.6%) is sufficient to support the current rating levels, despite large borrower concentrations in the pool (top borrower accounts for 6.3%, top 10 for 34.4%). In addition, in ITA 7, the ratings on the notes are less linked to the rating of the originator, owing to the lack of a repurchase obligation of defaulted loans as described above.

- MOODY'S MAINTAINS KEY COLLATERAL ASSUMPTIONS AS THE TRANSACTIONS PERFORM AS EXPECTED

Moody's maintained its default, recovery rate and coefficient of variation (CoV, a measure of default rate volatility) assumptions for these transactions because the transactions are performing in line with expectations.

In ITA 7, cumulative defaults stand at 8.5% of the total securitized pool, total delinquencies stand at 3.3%; and the pool factor is 3.5%. This compares to a default assumption of 8.8% over the life of the transaction. Moody's current default assumption is 7.0% of the current portfolio; its fixed recovery rate assumption is 50.0%; and its CoV assumption is 93.2%. Combined, these assumptions result in a portfolio credit enhancement of 20%.

In ITA 8, cumulative defaults stand at 10.2% of the original balance plus replenishments; total delinquencies stand at 2.7%; and the pool factor is 5.9%. This compares to a default assumption of 11.0% over the life of the transaction.Moody's current default assumption is 13.0% of the current portfolio; its fixed recovery rate assumption is 75.0% (based on the originator repurchase obligation); and its CoV assumption is 63.7%. Combined, these assumptions result in a portfolio credit enhancement of 21%. Moody's notes that the transaction is subject to material borrower concentrations, with the top borrower accounting for 3.6% of the pool balance and the top 10 borrowers accounting for 20.5%. Moody's has taken these borrower concentrations into account by running sensitivity scenarios. Credit enhancement available for class A, B, C and D are 37.6%, 26.2%, 18.6% and 16.0% respectively.

In ITA 9, cumulative defaults stand at 9.6% of the original balance plus replenishments; total delinquencies stand at 3.4%; and the pool factor is 13.6%. This compares to a default assumption of 10.8% over the life of the transaction. Moody's current default assumption is 14.0% of the current portfolio; its fixed recovery rate assumption is 75.0% (based on the originator repurchase obligation); and its CoV assumption is 74.0%. Combined, these assumptions result in a portfolio credit enhancement of 22.5%. The top borrower and top 10 borrowers account for 1.5% and 11.7% of the pool balance respectively. Credit enhancement available for class A, B, C and D are 32.2%, 18.8%, 9.8% and 6.9% respectively.

In LF 2, cumulative defaults stand at 5.4% of the original balance plus replenishments; total delinquencies stand at 3.4%; and the pool factor is 9.7%. This compares to a default assumption of 6.0% over the life of the transaction. Moody's current default assumption is 10% of the current portfolio; its fixed recovery rate assumption is 75.0% (based on the originator repurchase obligation); and its CoV assumption is 83.3%. Combined, these assumptions result in a portfolio credit enhancement of 20%. The top borrower and top 10 borrowers account for 1.8% and 14.4% of the pool balance respectively. Credit enhancement available for class A, B and C are 28.3%, 19.0% and 17.3% respectively.

- MOODYS HAS CONSIDERED EXPOSURE TO COUNTERPARTY RISKS

During its review, Moody's also considered potential risk arising from counterparties to the transaction in the role of the issuer account bank and swap provider, which is BNP Paribas (deposits A1 negative, bank financial strength rating C-/baseline credit assessment baa1). None of the reviewed transactions are currently exposed to further risk arising from the counterparties acting in these roles.

The risk of servicing disruption decreased following the upgrade of Banca Italease to Ba3/Not-Prime from B2/Not-Prime. In addition, the presence of Selmabipiemme S.p.A acting as backup servicer and the significant liquidity available in the form of cash reserve or liquidity facility in each transaction mitigate this risk.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that could cause an upgrade of the ratings include an increase in credit enhancement of the notes, further improvements in credit quality of the originator and improvement in the collateral performance of the pool.

Factors that could cause a downgrade of the ratings include a deterioration in the credit quality of the originator and a decline in the overall performance of the pool.

The principal methodology used in these ratings was "Moody's Approach to Rating ABS backed by Equipment Lease and Loans" published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of these transactions in the past six months.

In rating Italfinance Securitisation Vehicle S.r.l. (ITA 8), Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9) and Leasimpresa Finance S.r.l. (LF 2), Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

In rating Italease Finance S.p.A. Series 2005-1 (ITA 7), Moody's did not use any models, or loss or cash flow analysis, in its analysis.

As the section on loss and cash flow analysis describes for Italfinance Securitisation Vehicle S.r.l. (ITA 8), Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9) and Leasimpresa Finance S.r.l. (LF 2), Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For Italease Finance S.p.A. Series 2005-1 (ITA 7), Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Frederic Lautard
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carole Gintz
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
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Moody's upgrades the ratings of three Italian lease ABS transactions from Banca Italease
No Related Data.
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