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S&P Downgrades All Greek RMBS And ABS To A; Sees 2008 GDP Returning In 2017
From S&P
OVERVIEW
- On April 30, 2010 we placed on CreditWatch negative our ratings in 11 Greek ABS and RMBS transactions after we downgraded Greece to 'BB+' from 'BBB+'.
- We have subsequently revised our assessment of Greek country risk and how it might affect the notes of Greek securitizations we rate. We have concluded that ratings on Greek securitization notes should be no higher than 'A'.
- Consequently, we have lowered and removed from CreditWatch negative our ratings on all Greek securitization notes rated higher than that level to 'A'. At the same time, we have affirmed and removed from CreditWatch negative seven ratings on classes in six RMBS transactions.
- We have also maintained on CreditWatch negative our ratings on three classes in two Greek RMBS transactions and three classes in one ABS transaction as we need to do further work to resolve these CreditWatch placements. We would expect to resolve them within the coming weeks.
MILAN (Standard & Poor's) May 18, 2010--Standard & Poor's Ratings Services today lowered and removed from CreditWatch negative its credit ratings on all Greek securitization notes rated above 'A' to 'A' on account of its view of
how increased country risk may affect Greek structured finance transactions.
At the same time, we have affirmed and removed from CreditWatch negative our ratings on seven classes of notes in six residential mortgage-backed securities (RMBS) transactions. Additionally, we have kept on CreditWatch negative our ratings on three classes in two Greek RMBS transactions and three classes in one asset-backed securities (ABS) transaction (see ratings list below).
Here we explain the reasons behind these rating decisions. We have also published a related article explaining the individual transactions in more detail (see "A Review Of Greek RMBS And ABS Transactions," published May 18,
2010).
COUNTRY RISK
We analyze country risk when assigning structured finance ratings. We consider how a broad range of political, legal, economic, and industry factors may affect the performance of structured finance transactions and their ratings. Our current assessment of country risk for Greece is that weak economic growth prospects, together with what we broadly consider a lower level of predictability of government policies are the main factors that may adversely affect the performance of Greek structured finance transactions.
Austerity measures to correct fiscal imbalances in the Greek economy are in our view likely to further depress Greece's medium-term economic growth prospects. Our assessment of these economic prospects is factored into the current 'BB+' long-term sovereign rating on the Hellenic Republic. Under our revised assumptions, we expect real GDP to be nearly flat over 2009-2016, while the level of nominal GDP may not return to the 2008 level until 2017.
MAXIMUM ACHIEVABLE STRUCTURED FINANCE RATINGS
When rating a securitization above the foreign currency rating on the sovereign in which the assets are located, our premise is that the structured finance obligation would continue to perform in a stress scenario where the government has defaulted on its obligations.
While we believe that this would be the case for Greek structured finance transactions we rate, we also consider that risks affecting these transactions have increased materially due to heightened country risk that is in part reflected in the 'BB+' sovereign rating on the Hellenic Republic. As a result, the likelihood that these transactions could experience an unusually large adverse change in credit quality has also increased in our view. Therefore, we are limiting the maximum achievable rating for structured finance transactions backed by Greek assets to 'A'.
We may make further adjustments to the maximum achievable structured finance rating if there is a change in our view of country risk or, in some cases, a change to the sovereign rating on Greece. The current negative outlook on the ratings on Greece reflects the possibility of a further downgrade if, in our view, the Greek government's ability to implement its fiscal and structural reform program is undermined by domestic political opposition or materially weakens for other reasons, including even weaker economic conditions than we currently assume.
The effect on Greek structured finance transactions from any future downgrade of the sovereign rating might come from a combination of factors that are hard to predict at this point. We will review our assessment of country risk and
the impact on structured finance transactions if the sovereign rating on Greece changes. At the same time, some future government decisions, such as the implementation of a borrower relief program, might by themselves have no
material effect on the sovereign rating, but could have a significant effect on transactions. We will also assess the effect of those decisions if and when they happen.
STRESS ASSUMPTIONS
In our opinion, the economic recession and rising unemployment associated with increased country risk may negatively affect the willingness and ability of obligors to repay their debts, with transactions experiencing higher defaults and delinquencies and ultimately decreased cash flow. To absorb this increased credit risk, we believe that structured finance notes should be able to withstand losses that would be at least double the initial loss expectations
for each rating level. These increased loss assumptions would apply to the ratings on any outstanding notes, as well as to the ratings on any new notes backed by Greek assets. In future, should our assessment of country risk change, we may change the applicable loss assumptions.
Based on the above analysis, we have concluded that certain notes have credit enhancement levels that can at least withstand these increased loss assumptions and as a result, we have affirmed and removed from CreditWatch negative our ratings on seven classes of notes in six transactions. This analysis assessed the collateral performance, the risk profile of the residual collateral pool, the deleveraging of the portfolio, and the increase in available credit enhancement, all within our current country risk assessment.
Furthermore, we have maintained on CreditWatch negative the other six outstanding ratings. We will carry out further analysis on these transactions to resolve the CreditWatch status.
We will continue to monitor the performance of all Greek transactions and any deterioration in expected performance may lead to further rating actions in the future.
COUNTERPARTY RISK
On April 27, 2010, we also downgraded to BB/Negative/B three Greek banks, AlphaBank A.E., EFG Eurobank Ergasias S.A., and Piraeus Bank S.A. (see "Greek Bank Ratings Lowered Following Sovereign Downgrade; Outlook Negative "), all of them originators in some of these transactions.
Greek structured finance transactions typically set their counterparty rating triggers at the 'A-2' threshold to mitigate risks arising from commingling or set-off. If the counterparty's rating falls below that threshold, the documents would generally provide for remedies such as the replacement of the counterparty within a short timeframe.
According to our counterparty criteria, these bank downgrades, in and of themselves, would not result in negative rating actions provided that the remedies are executed. We will monitor developments in these transactions and might take appropriate rating actions if the banks fail to take the remedial actions as indicated in the transaction documents.
RATINGS LIST
Class Rating
To From
Anaptyxi 2006-1 PLC
€2.25 Billion Asset-Backed Floating-Rate Notes
A A AA/Watch Neg
B A/Watch Neg A/Watch Neg
C BBB-/Watch Neg BBB-/Watch Neg
D B/Watch Neg B/Watch Neg
Byzantium Finance PLC
€252.5 Million Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A A/Watch Neg
C BBB BBB/Watch Neg
Daneion 2007-1 PLC
€2.5 Billion Asset-Backed Floating-Rate Notes
A A AA/Watch Neg
Estia Mortgage Finance PLC
€750 Million Residential Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A AA/Watch Neg
C BBB+ BBB+/Watch Neg
Estia Mortgage Finance II PLC
€1.25 Billion Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A/Watch Neg A/Watch Neg
C BBB/Watch Neg BBB/Watch Neg
Kion Mortgage Finance PLC
€600 Million Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A AA/Watch Neg
C BBB BBB/Watch Neg
Lithos Mortgage Financing PLC
€1 Billion Residential Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A AA-/Watch Neg
C BBB BBB/Watch Neg
Pisti 2010-1 PLC
€956.3 Million Asset-Backed Fixed and Floating-Rate Notes Series 2010-1
A A AA/Watch Neg
Themeleion II Mortgage Finance PLC
€750 Million Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
B A A+/Watch Neg
C BBB BBB/Watch Neg
Themeleion III Mortgage Finance PLC
€1 Billion Mortgage-Backed Floating-Rate Notes Due 2043
A A AA/Watch Neg
M A AA/Watch Neg
B A A/Watch Neg
C BBB/Watch Neg BBB/Watch Neg
Themeleion IV Mortgage Finance PLC
€1.555 Billion Mortgage-Backed Floating-Rate Notes
A A AA/Watch Neg
»
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"We have subsequently revised our assessment of Greek country risk and how it might affect the notes of Greek securitizations we rate. We have concluded that ratings on Greek securitization notes should be no higher than 'A'."
Ah good plan.
What took them so long? Did the keen analysts at S&P only recently become aware of the gravity of the problem?
LOL. They couldn't say, "Greece can't pay us the usual under-the-table protection money, so we've decided to lower their ratings." What a racket. Aren't there any trial attorneys out there they would love to bring a RICO suit against the ratings agencies?
Crash already! I need the proceeds from DRR to scoop up some gold.
To default or not default. That isn't the question anymore.
It could have been shakespeare saying this :)
Just a small oversight I am sure, but William Shakespeare does deserve Capital letters.
But why do they banks keep going up?!
There are a lot of things tied to a banks' stock price, like bonuses, and collateral for loans. Since banks can borrow at essentially nothing, they can push their stock prices up and thereby create a "perception of wealth" for themselves. As the stock price rises, it attracts outside (real) money that flows into the stock. As the stock price rises, the bankers remove money from the game by collecting on their bonuses.
Think of two rubber balls. One ball is made larger by adding layer upon layer of new material. The other ball starts out the same, but it is enlarged by inflating it with air. The solid rubber ball is the model for a company that produces goods. The second model is for a company that grows by manipulation of paper.
For me it actually means they have no exposure to greece, but they do on the Euro. Bonds? Obligations? what?....
Do you think this would've been useful information a few weeks ago?
I believe that S&P will downgrade something in Portugal tomorrow ( Banks?) and in Spain the day after.... just to be consistent with the speculators it serves. As for UK, Ireland and US. ... not a single word!
UK definitely deserves a credit downgrade. The whole pound project stinks. The scottish will sone create the Scottish Krona, Wales the Wales Franc, and nothern Ireland will join the EMU.
Once all the political chair shuffling in the UK is complete (almost there) expect to see a surprise announcement from the government that the prior government was cooking the books and the "problem" is much bigger than anyone thought. Who'd have thunk?
Surprise, it's the boogieman.
Already started.
http://www.timesonline.co.uk/tol/news/politics/article7127819.ece
Wonder what else they will "find" along the way?
if the world would keep buying us treasuries and asst. debt paper there wouldn't be a need for any stinkin downgrades.
In other financial news:
http://www.cnbc.com/id/37192473
Cramer is giving us six reasons to buy gold.
RUN FOR THE EXITS!!!!!
He also spoke out a Cramer Curse over BP by pushing it to go to 55$. Poor shareholders... that mostly means the the bottom is out...
I guess Dennis Gartman must have read Cramer's piece.
http://www.cnbc.com/id/37209570
Cramer should call his show "The Shorters Corner" :)
1. I shorted Citi when he called for 12.5$ = KAJING!
2. I shorted BP even when he was calling it back to 55$ = KAJING!
3. I'm now short on gold to 1100 by december = do the math :)
Watch it SD, shorting Cramer might look like a sure bet, but in this case I wouldn't be betting the house on it.
Gold might hit 1100 but it will be way before December. By then it will be north of 1500.
And again usefull info from a trustworthy source!
Just waiting for the S&P and other rating agencies to be downgraded / terminated. Maybe that would make a change........
LMAO
Good God, the turd has been excreted from the body and then flushed down the toilet and NOW S&P is considering calling it a semi turd?
Where do I get a job where I can always use hindsight and history to rate securities using 6 months of lag time?
Right, but when Cramer says buy gold, most people will buy GLD or some similar instrument.
Can you believe he said "...triumph of the will..." in that video clip? What an odd character.
He's lost weight. Their are rumors about him (heard at a cocktail party, chatting with staffers from The Street) and the SEC - not that it really means anything. A lot of these journalists think the SEC is looking at everyone these days.
His show is really about his own psychology. He will do anything to stave off negative feelings. That's the danger of becoming emotionally attached to silly things like stocks, bonds, and commodities...
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