Moody's assigns provisional ratings to Dutch RMBS notes to be issued by Dutch Mortgage Portfolio Loans X B.V. (DMPL 10)
London, 20 June 2012 -- Moody's Investors Service has today assigned provisional credit ratings to the following classes of notes to be issued by Dutch Mortgage Portfolio Loans X B.V. (DMPL 10):
....EUR168.0M A1 Notes, Assigned (P)Aaa (sf)
....EUR615.7M A2 Notes, Assigned (P)Aaa (sf)
....EUR64.6M B Notes, Assigned (P)Baa2 (sf)
The transaction represents the securitisation of Dutch prime mortgage loans backed by residential properties located in the Netherlands. The portfolio will be serviced by Achmea Hypotheekbank N.V. (AHB) (not rated).
The ratings of the notes take into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Aaa Credit Enhancement and the portfolio expected loss.
The expected portfolio loss of 0.60% of the portfolio at closing and the MILAN Aaa required Credit Enhancement of 8.6% served as input parameters for Moody's cash flow model, which is based on a probabilistic lognormal distribution as described in the report "The Lognormal Method Applied to ABS Analysis", published in July 2000.
The key drivers for the MILAN Aaa Credit Enhancement number, which is in line with other prime Dutch RMBS transactions which closed during the past twelve months, are (i) the weighted average loan-to-foreclosure-value (LTFV) of 85.9%, which is slightly lower than observed in other Dutch RMBS transactions; (ii) the proportion of interest-only loan parts (71.6%) which is slightly higher than for other prime Dutch RMBS transactions; (iii) the weighted average seasoning of 5.1 years; and (iv) the limited possibility for the seller to substitute new loans into the subject structure.
The key drivers for the portfolio expected loss are (i) the performance of the seller's precedent transactions as well as the performance on the seller's book; (ii) benchmarking with comparable transactions in the Dutch RMBS market, and (iii) the current economic conditions in the Netherlands in combination with historic recovery data of foreclosures received from the seller.
Approximately 15.1% of the portfolio is linked to life insurance policies (life mortgage loans), which are exposed to set-off risk in case an insurance company goes bankrupt. The seller has provided loan-by-loan insurance company counterparty data, whereby approximately 61% of all life insurance-linked products are linked to insurance policies provided by group companies of Achmea Pensioen & Levensverzekeringen N.V., which is not rated by Moody's. Moody's made an assessment of the credit profile of this entity for the purpose of modelling the set-off risk in the cash flow analysis.
The transaction benefits from a non-amortising reserve fund that will be fully funded at approximately 1% of the total rated notes (EUR8.5 million) at closing. The total credit enhancement for the Aaa rated notes is 8.6%. Apart from the reserve fund, the transaction benefits from an excess margin of 35 bps through the swap agreement. The swap counterparty is Rabobank International. Furthermore, there is a liquidity facility (provided by Bank Nederlandse Gemeenten N.V. (Aaa/P-1)) of 2% of the outstanding notes which amortizes to a floor of 1%. ATC Financial Services B.V. (not rated) acts as the issuer administrator in this transaction.
Moody's Parameter Sensitivities: At the time the rating was assigned, the model output indicated that class A2 would have achieved Aa2 if the expected loss was as high as 0.90% assuming MILAN Aaa CE increased to 10.3% and all other factors remained the same. Class A1 would have achieved Aaa in all tested scenarios.
Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.
The Foreign Account Tax Compliance Act (FATCA), a US legislation, may impact the transaction. The regulations implementing the Act are still in draft form and Moody's is currently reviewing the potential impact of FATCA. Should this transaction become subject to US withholding tax under FATCA the rating of the Notes may be negatively impacted.
The V Score for this transaction is Low/Medium, which is in line with the V Score assigned for the Dutch RMBS sector, mainly due to the fact that it is a standard Dutch prime RMBS structure for which we have over 10 years of historical performance data on precedent transactions. The primary source of uncertainty is due to operational risks relating to the servicing arrangement. The servicer (AHB) is not rated by Moody's. This risk is mitigated by (i) liquidity support in case of servicer disruption; and (ii) the fact that the transaction documentation provides that upon a borrower assignment notification event the security trustee and the issuer will use best efforts to select a back-up servicer. Moody's has conducted an analysis of Achmea Hypotheekbank N.V. to assess the operational risk associated with this counterparty in the transaction.
V Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V Score has been assigned according to the report "V Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.
The principal methodology used in this rating 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.
In rating this transaction, 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.
The rating addresses the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the notes by the legal final maturity. Moody's ratings only address the credit risk associated with the transaction. Other noncredit risks have not been addressed, but may have a significant effect on yield to investors.
Moody's issues provisional ratings in advance of the final sale of securities, but these ratings only represent Moody's preliminary credit opinion. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a provisional rating. Moody's will disseminate the assignment of any definitive ratings through its Client Service Desk. Moody's will monitor this transaction on an ongoing basis. For updated monitoring information, please contact email@example.com.
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 Dutch banks published on 15 June 2012, (please see " Moody's downgrades Dutch banking groups; most outlooks now stable").
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