Moody’s Investors Service is putting its concerns of operational risks into practice as it reviews for possible downgrade notes issued by Four Seas, a Belgian diamond inventory securitization.

The rating agency placed on review for possible downgrade the ‘A1’ rating of the Series A senior secured notes issued by the company. The notes were privately placed among a limited number of qualified investors in March 2007.

Although the original rating addresses the expected loss on the notes by March 2014, today's rating action has been prompted by the review of operational risks in the transaction. 

Four Seas is a non-standard transaction backed by physical inventories located in several countries leading to complex operational risks linked to servicing and back-up servicing, cash management, borrowing base calculations and governance.

Moody's will also review the volatility in diamond price indexes seen since the start of the financial crisis and any impact it might have on the advance rate.

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