Moody's reviews 6 tranches in 5 Italian RMBS for downgrade following update to the approach to set off risk analysis in Italian structured finance transactions

Stocks and Financial Services Press Releases Tuesday June 12, 2012 08:52
London--12 Jun--Moody's

London, 11 June 2012 -- Moody's has today placed on review for downgrade the ratings on six tranches in five residential mortgage-backed securities (RMBS), following the release of its updated approach to analysing set-off risk in Italian structured finance transactions. For more information on the updated approach, please see "Moody's Approach to Set-Off Risk in Italian Structured Finance and Covered Bonds Transactions", published 8 June 2012 (please see http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF285617).

The list of affected ratings is available at the end of this press release.
RATINGS RATIONALE
Today's rating action takes into account (i) Moody's updated methodology for set-off risk in Italian structured finance transactions and (ii) the current levels of available credit enhancement.
As described in the report, the key changes Moody's has made in its approach to set-off risk in Italy are as follows:

Moody's no longer gives full value to the Italian deposit compensation funds ("the funds"), given that the credit quality of the funds is no longer Aaa rated, following the deterioration of the Italian sovereign's credit rating.

Moody's now takes into account "deposit flight" (borrowers withdrawing monies from their current accounts) which can decrease the potential set-off risk.
Moody's has introduced a correlation assumption between the performance of the funds and the performance of the pool.

Moody's conducted an impact analysis on all existing Italian ABS & RMBS transactions to identify ratings that the update could affect. Moody's found that, for the affected tranches, the current level of credit enhancement, despite having increased since closing in some cases because of de-leveraging, is insufficient to compensate for the assumed increase in set-off exposure resulting from the reduced value Moody's now gives to the Italian deposit compensation scheme.

In its impact analysis, Moody's assumed that set-off exposure in outstanding transactions for which no loan-by-loan set-off exposure was available was in line with the total set-off exposure in the loan-by-loan data it has received from various Italian originators in the past.

During its review, Moody's will require additional set-off information, in the form of loan-by-loan data, from transaction originators to determine whether a transaction's actual set-off exposure will have an impact on the ratings.

Moody's expects to conclude its reviews of the ratings on all of the affected tranches within six months.
OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES IN FUTURE

As the euro area crisis continues the ratings of the notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. For more information please refer to the Rating Implementation Guidance published on 13 February 2012 "How Sovereign Credit Quality May Affect Other Ratings" and the special comment published on 19 January 2012 "Why Global Bank Ratings Are Likely to Decline in 2012".

Following the downgrade of Italy's long-term government bond rating to A3, Moody's lowered the maximum achievable ratings in Italy from Aaa(sf) to Aa2(sf). Furthermore, as discussed in Moody's special report "Rating Euro Area Governments Through Extraordinary Times -- An Updated Summary," published in October 2011, Moody's is considering reintroducing individual country ceilings for some or all euro area members, which could affect further the maximum structured finance rating achievable in those countries. Moody's is also continuing to consider the impact of the deterioration of sovereigns' financial condition and the resultant asset portfolio deterioration on mezzanine and junior tranches of structured finance transactions.

The principal methodology used in these ratings was Moody's Approach to Rating RMBS in Europe, Middle East, and Africa published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The main driver to the rating action is the update to the dated EMEA RMBS Secondary Methodologies: "Moody's Approach to Set-Off Risk in Italian Structured Finance and Covered Bonds Transactions", 8 June 2012 (please see http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF285617).

In reviewing the impact of the updated set-off methodology, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche.

As such, Moody's analysis encompasses the assessment of stressed scenarios.

As the Euro area crisis continues, the rating of the structured finance notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. For more information please refer to the Rating Implementation Guidance published on 13 February 2012 "How Sovereign Credit Quality May Affect Other Ratings". Please also refer to the recent rating actions on banks published on 15 February 2012, (please see "Moody's Reviews Ratings for European Banks" and "Moody's Reviews Ratings for Banks and Securities Firms with Global Capital Markets Operations" for more information.

Issuer: Asti Finance S.r.l.
....EUR23.7M B Notes, A2 (sf) Placed Under Review for Possible Downgrade; previously on Dec 20, 2005 Definitive Rating Assigned A2 (sf)
Issuer: Berica 6 Residential MBS S.r.l.
....EUR42.8M B Notes, A3 (sf) Placed Under Review for Possible Downgrade; previously on Oct 4, 2011 Downgraded to A3 (sf)
....EUR8.565M D Notes, B3 (sf) Placed Under Review for Possible Downgrade; previously on Oct 4, 2011 Confirmed at B3 (sf)
Issuer: BPM Securitisation 2 Srl
....EUR40.3M B Notes, Aa2 (sf) Placed Under Review for Possible Downgrade; previously on Jul 4, 2006 Definitive Rating Assigned Aa2 (sf)
Issuer: Cassa Centrale Securitisation S.r.l.
....EUR17.5M B Notes, A2 (sf) Placed Under Review for Possible Downgrade; previously on Jul 9, 2007 Definitive Rating Assigned A2 (sf)
Issuer: VELA HOME S.r.l. Series 3
....EUR18.2M C Notes, Baa1 (sf) Placed Under Review for Possible Downgrade; previously on Nov 4, 2005 Definitive Rating Assigned Baa1 (sf)
REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these reviews.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.


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