Specifically, Moody's has today downgraded the ratings of 20 notes previously rated at the country ceiling and confirmed the rating of one note out of 18 Portuguese RMBS transactions. Moody's downgraded these notes by one to two notches. The downgrades are driven by insufficient levels of credit enhancement required for a rating to reach the country ceiling. As part of today's rating action, Moody's has also concluded its rating review of six Portuguese RMBS transactions placed on review on 8 June 2012, following the release of the rating agency updated methodology "Moody's Approach to Rating RMBS in Europe, Middle East, and Africa".
Please click on this link (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308611) for the list of affected ratings. This list is an integral part of this press release. For a detailed rationale on each rating action, please refer to the list of affected credit ratings.
As a part of the Portuguese RMBS market review Moody's has revised key collateral assumptions in a further nine transactions that were not affected by today's rating action. The list of updated assumptions for the entire Portuguese RMBS market is available in the following link (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308610).
All Portuguese RMBS notes rated above Ca (sf) and not confirmed by today's rating action remain on review pending reassessment of required credit enhancement to address country risk exposure. Some tranches are also on review pending Moody's assessment of rating linkage to counterparties.
RATINGS RATIONALE
Today's rating action reflects the insufficient levels of credit enhancement for the affected notes to achieve the country ceiling. Moody's has also confirmed one note rated at the country ceiling because of sufficient credit enhancement.
-- INSUFFICIENCY OF CREDIT ENHANCEMENT TO ACHIEVE COUNTRY CEILING
Moody's downgraded 20 notes in 17 transactions due to insufficient credit enhancement, despite decreasing its MILAN Credit Enhancement (CE) assumption. The rating agency revised its required MILAN CE in line with its updated methodology "Moody's Approach to Rating RMBS in Europe, Middle East, and Africa" published on 6 June 2012. In Moody's opinion, the affected securities' available credit enhancement is insufficient to compensate for the required MILAN CE assumption. As a result, the affected notes cannot achieve the maximum achievable rating of Baa3(sf).
-- MILAN CE
Moody's has revised its MILAN CE assumptions following the publication of the updated methodology used in its RMBS collateral analysis. The key changes to the EMEA RMBS methodology include the introduction of a transaction minimum portfolio credit enhancement level and the Minimum Expected Loss Multiple. The minimum portfolio MILAN CE for Portuguese RMBS ranges between 10%-15% to Baa3(sf) rating, or country ceiling.
-- Expected Loss (EL)
Moody's has not changed its lifelong expected loss assumptions for the Portuguese RMBS market. While Portuguese collateral performance has slightly deteriorated since Moody's last revision of assumptions in July 2011, it has remained in line with Moody's expectations. Moody's Portuguese Prime RMBS index reported 90+ day delinquencies at 1.34% in July 2012, up from 1.08 % in July 2011. The cumulative loss index remained flat at 0.78% over the past year. Annualised redemption rates trended downward, currently staying at 1.51%. See "Portuguese Prime RMBS Indices" for more information on collateral performance.
-- SUFFICIENT CREDIT ENHANCEMENT TO ACHIEVE COUNTRY CEILING AND ADEQUATELY MITIGATED EXPOSURE TO COUNTERPARTIES
Moody's has confirmed the rating of one note rated at the country ceiling with sufficient credit enhancement and adequately mitigated exposure to counterparties. In addition, Moody's believes that the credit enhancement supporting this note provides adequate cushion against country risk exposure.
-- FIRST DRIVER FOR REVIEW PLACEMENT: REASSESSMENT OF CREDIT ENHANCEMENT TO ADDRESS COUNTRY RISK EXPOSURE
Moody's maintains on review for downgrade the ratings of notes rated above Ca(sf) in order to reassess credit enhancement adequacy levels, given the higher risk of economic and financial instability. Moody's is continuing to consider the impact of the deterioration of the sovereign's financial condition and the resulting asset portfolio deterioration on tranches of structured finance transactions.
-- SECOND DRIVER FOR REVIEW PLACEMENT: ASSESMENT OF LINKAGE TO COUNTERPARTIES
Some notes also remain on review pending Moody's assessment of the rating linkage to counterparties. The rating agency will assess the degree of linkage by taking into account payment disruption risk and the high exposure to swap providers or to issuer account banks.
-- OTHER DEVELOPMENTS MAY NEGATIVELY AFFECT THE NOTES
As the euro area crisis continues, the ratings of 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 affect the ratings of the notes.
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 Portuguese RMBS included those affected by today rating action may be negatively affected. See "Approach to Assessing the Impact of a Rapid Country Credit Deterioration on Structured Finance Transactions", (21 August 2012). (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.
Additional factors that may affect the resolution of these reviews are described in "The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines" (http://www.moodys.com/research/The-Temporary-Use-of-Cash-in-Structured-Finance-Transactions-Eligible--PBS_SF289341 ) and "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF289772), both published on 2 July 2012.
Key modelling assumptions, such as MILAN CE assumptions have been updated. Potential sensitivities, cash flow analysis and stress scenarios for the affected transactions have not been updated, as the rating actions have been primarily driven by (1) the update of the key assumptions; and, as a consequence, (2) Moody's decision to assess credit enhancement levels consistent with each structured finance rating category.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Moody's Approach to Rating RMBS in Europe, Middle East, and Africa" published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Moody's approach to country risk ceilings is described in "Local-Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_140182), published on 16 August 2012.
The rating considerations described in this press release complement the principal rating methodology applicable to Portuguese RMBS transactions affected by today's rating action (see link provided above in this press release for a full list of affected credit ratings).
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 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.
Sebastian Hoepfner Analyst Structured Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Barbara Rismondo Senior Vice President Structured Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom 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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