Concurrently, Moody's has said that, in light of the high levels of credit enhancement available for the notes, there will be no negative rating impact on the senior class of ITA8, and on eight classes of notes issued by Italease Finance S.p.A Series 2004-1 (ITA6), Italease Finance S.p.A Series 2005-1 (ITA7), Erice Finance S.r.l (ERICE) and Italfinance Securitisation Vehicle 2 S.r.l (ITA 11), following the placement of the originator of these transactions, Banca Italease, on review for downgrade.
RATINGS RATIONALE
"Today's rating action reflects the low levels of credit enhancement in the transactions, given our negative forecast and severe downside scenarios for Italian leasing performance," said Alix Faure, a Moody's Analyst for some of these affected transactions. "Our decision follows the placement of the ratings on review because of counterparty risk, our reassessment of the necessary credit enhancement levels in the three transactions and global performance deterioration in the Italian leasing market," adds Ms. Faure. The tranches remain under review for downgrade because of the possible impact of the review placement of Banca Italease on the credit quality of the notes.
-- PERFORMANCE AND KEY REVISED ASSUMPTIONS: CUMULATIVE DEFAULT, VOLATILITY AND RECOVERY
Moody's reviewed the portfolio performance of ITA6, ITA7, ITA8, ITA9, LF2 and ERICE and revised some of the key rating assumptions for these transactions.
ITA8, ITA9 and LF2 currently perform better than the Moody's Italian Lease delinquency index. In the third quarter of 2012, total delinquencies as a percentage of the current balance stood below the index of 6.3% at 5.1% in ITA8, 3.6% in ITA9 and 2.9% in LF2.
For further information on performance please refer to the latest Italian Leasing ABS Indices published by Moody's in October 2012 . http://www.moodys.com/research/Italian-Leasing-ABS-Indices-July-2012--PBS_SF304955
In these transactions, the observed performance is conditioned by the ability of the originator to repurchase delinquent loans and by its obligation to repurchase defaulted loans (for a minimum price of 75% of their outstanding amount). While Banca Italease's credit quality deteriorates, the likelihood of the repurchase performance diminishes. In addition, this repurchase practice makes it difficult to identify the true performance of the transactions and creates a linkage with the originator's rating.
Moody's revised the expected cumulative default assumptions for these deals, which correspond to an average pool rating of single B range over the remaining life of the transactions:
- 13% for ITA8 (in % of current balance; equivalent to 8.8% in % of original balance)
- 14% for ITA9 (in % of current balance; equivalent to 10.8% in % of original balance) and
- 10% for LF2 (in % of current balance; equivalent to 6% in % of original balance)
Moody's contemplated base and stressed volatility scenarios in light of the deteriorating economic environment in Italy and the increased probability of strong performance deterioration (ranging from 45% (base case for ITA8) to 80% (stressed case for LF2)).
When modeling cash flows, Moody's maintained the recovery rate assumptions of the three transactions at 75% based on Banca Italease repurchase obligation. However, Moody's assumed the recovery rate to go down to 15% upon Banca Italease's default. Legal uncertainty on the rights of the special purpose vehicles (SPVs) to recover amounts on the lease contracts upon originator's default drive this assumption. This feature creates additional linkage between the rating of the notes and the rating of Banca Italease.
As a consequence of this linkage and of Moody's placing Banca Italease on review for downgrade, the rating agency also maintained the ratings of the notes on review for further downgrade.
In the other transactions, where no rating action is taken today, Moody's also updated its cumulative default assumptions, which correspond to a single B range over the remaining life of the transactions:
- 5% for ITA6 (in % of current balance; equivalent to 3.8% of original balance)
- 7% for ITA7 (in % of current balance; equivalent to 8.8% of original balance)
- 15% for ITA11 (in % of current balance; equivalent to 10.8% of original balance)
- 20% for ERICE (in % of current balance; equivalent to 17.9% of original balance)
Moody's also updated the recovery rate assumptions to 50% in ITA6, ITA7, ITA11 and 60% in ERICE, as these transactions do not benefit from the previously described Banca Italease repurchase obligation. Upon Banca Italease's default, Moody's assumed the recovery rate to go down to 15%.
Due to the high level of credit enhancement in these transactions, Moody's assessed no rating impact for these transactions following the update of key rating assumptions and increased risk exposure to Banca Italease.
Following Banca Italease downgrade, Moody's assessed no negative rating impact on the junior tranche of the ERICE transaction, which is currently rated Ba1 and guaranteed by Banca Italease,. In the past, Moody's considered the rating of this tranche as highly linked to Banca Italease's rating quality. However, the current level of credit enhancement available to this tranche (the reserve fund stands at approximately 33% of the notes balance) now allows for some de-linkage between the rating of Banca Italease and the rating of this junior tranche.
-- COUNTERPARTY RISK
During its review, Moody's also considered potential risk arising from counterparties to the transaction in the role of issuer account bank, servicer and swap provider. None of the reviewed transactions is currently exposed to further risk arising from the counterparties acting in these roles.
SENSITIVITY ANALYSIS
Considering the recent downgrade of the originator, Moody's analysed various sensitivities on the originator's rating to test the robustness of its revised ratings. In particular, if the rating were to move by two or three notches, the model outcome for the tranches show a one to two notch change in the model indicated rating for ITA8, one to three notch for ITA9 and one to two notches for LF 2.
On 21 August 2012, Moody's released a Request for Comment seeking market feedback on proposed adjustments to its modelling assumptions. These adjustments are designed to account for the impact of rapid and significant country credit deterioration on structured finance transactions. If the adjusted approach is implemented as proposed, the rating of the notes affected by today's rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (http://www.moodys.com/research/Approach-to-Assessing-the-Impact-of-a-Rapid-Country-Credit--PBS_SF294880) for further details regarding the implications of the proposed methodology changes on Moody's ratings.
LIST OF AFFECTED RATINGS
Issuer: Italfinance Securitisation Vehicle 2 S.r.l. (ITA 9)
....EUR1442.4M A Notes, Downgraded to A3 (sf) and Placed Under Review for Possible Downgrade; previously on Aug 2, 2012 Downgraded to A2 (sf)
....EUR125M B Notes, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Aug 2, 2012 A3 (sf) Placed Under Review for Possible Downgrade
....EUR84.3M C Notes, Downgraded to Ba2 (sf) and Remains On Review for Possible Downgrade; previously on Aug 2, 2012 Baa3 (sf) Placed Under Review for Possible Downgrade
....EUR27.9M D Notes, Downgraded to B2 (sf) and Remains On Review for Possible Downgrade; previously on Aug 2, 2012 Ba1 (sf) Placed Under Review for Possible Downgrade
Issuer: Leasimpresa Finance S.r.l. (LF 2)
....EUR931.5M A Notes, Downgraded to Baa1 (sf) and Remains On Review for Possible Downgrade; previously on Aug 2, 2012 Downgraded to A2 (sf) and Placed Under Review for Possible Downgrade
....EUR57.2M B Notes, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Oct 20, 2011 A2 (sf) Placed Under Review for Possible Downgrade
....EUR10.3M C Notes, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 20, 2011 Baa2 (sf) Placed Under Review for Possible Downgrade
Issuer: Italfinance Securitisation Vehicle S.r.l. (ITA 8)
....EUR83M B Notes, Downgraded to Baa2(sf) and Remains On Review for Possible Downgrade; previously on Aug 2, 2012 A3(sf) Placed Under Review for Possible Downgrade
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were "Moody's Approach to Rating Multi-Pool Financial Lease-Backed Transactions in Italy", published in June 2006 and "Moody's Approach to Rating CDOs of SMEs in Europe", published in February 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Moody's used its excel-based cash flow model, Moody's ABSROM[TM], as part of its quantitative analysis of the transaction. Moody's ABSROM[TM] model enables users to model various features of a standard European ABS transaction including: (1) the specifics of the default distribution of the assets, their portfolio amortisation profile, yield or recoveries; and (2) the specific priority of payments, triggers, swaps and reserve funds on the liability side of the ABS structure. Moody's ABSROM[TM] User Guide is available on Moody's website and covers the model's functionality as well as providing a comprehensive index of the user inputs and outputs.
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 ratings.
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.
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.
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.
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.
Iris ThateAsst Vice President - Analyst Structured Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Carole Gintz VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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