Greek structured finance and covered bond transactions can still achieve 'Aaa' ratings as long as they are backed by sufficient protection, Moody's Investors Service said.

On Feb. 4, Moody's announced it was reviewing the potential implications of the changing situation of Greek public finances and would not issue any new 'Aaa' ratings to Greek structured finance transactions until the conclusion of its review.

The rating agency believes that Greek structured finance and covered bond transactions could achieve a 'Aaa' rating subject to three main conditions.

First, the credit enhancement available to the transaction is sufficient for the pool of collateral to withstand extreme scenarios, including those of potential government debt problems.

Second, all operational risks in the transaction are satisfactorily mitigated, taking into
account Moody's criteria for servicing, cash management and account banks. Moody's also said that sufficient liquidity support must be available to protect against the risk of payment default under the senior notes.

To determine the amount of credit enhancement necessary to achieve a 'Aaa' rating, Moody's considered a few extreme scenarios, such as the crisis in Argentina in 2000, which combined a systemic banking crisis together with a sovereign debt crisis and resulted in inflation exceeding 40% and a real GDP drop of more than 10%.

 

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