Moody's Investor Service downgraded Italy to 'A2' with a negative outlook, from 'Aa2' but the agency said that for Italian structured finance deals, 'Aaa' ratings are still achievable.

The main drivers of the sovereign downgrade according to Moody's were increased downside risks to economic growth; increase in long-term funding risk due to the high public debt level and implementation risks of the government's fiscal consolidation targets due to economic and political uncertainties.

The rating agency said that while it is still possible for Italian structures to achieve a triple-A rating, the minimum expected level of credit enhancement would be 10%-15% for RMBS (depending on pool characteristics),  15%-20% for auto ABS,  20%-25% for consumer ABS and 30%-35% for SME/Leases ABS.

These deal will also need to have highly rated transaction parties or appropriate operational risk mitigants in place.

According to the analysts at the Royal Bank of Scotland, there are currently 76 'Aaa' RMBS and consumer ABS bonds rated by Moody's  and most of these bonds should retain their 'Aaa' rating based on the minimum credit enhancement requirements.

However analysts said that based on  its credit enhancement analysis, the bonds that currently bear the highest risk of losing their  'Aaa' rating due to insufficient credit enhancement are: CAPIM 2007-1 A1  RMBS with 7.09% credit enhancement and CAPIM 2007-1 A2 RMBS with 7.09% credit enhancement.

From the consumer securitization side the analysts noted that two auto ABS deals, CAR 2007-1 A -  with 10.62% credit enhancement and COMP 2007-2 A with 10.90% credit enhancement could also be impacted. 

The analysts noted that five lease transaction might also be affected which include  FEGRE B with  6.5% credit enhancement, ITFIN 2004-1 A2 with 23.31% credit enhancement, ITFIN 2005-1 A2 with 11.37% credit enhancement, LEASI 2 A with 19.43% credit enhancement , ITALF 2007-1 A with 29.35% credit enhancement and ZEPHR 2008-1 A1 with  26.31% credit enhancement.

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