TEXT-S&P affirms rtgs in Greek RMBS Themeleion III Mortgage Finance

Feb 08 -

OVERVIEW

-- We have affirmed our ratings on Themeleion III Mortgage Finance's class A, M, B, and C notes.

-- The transaction is backed by a pool of prime residential mortgages in Greece, originated by EFG Eurobank Ergasias.

Standard & Poor's Ratings Services today affirmed its credit ratings on Themeleion III Mortgage Finance PLC's class A, M, B, and C notes (see list below). The transaction is backed by a pool of prime residential mortgages in Greece (Hellenic Republic) that were originated by EFG Eurobank Ergasias S.A. (CCC/Negative/C).

Throughout 2010, the assets backing this transaction showed stable arrears and losses, but in 2011 we have observed a deterioration in their performance. The level of overall arrears worsened in early 2011, in particular the number of loans in the 90+ day bucket increased to 1.66%, from 1.03% in June 2010.

The loan-to-value (LTV) ratios for this portfolio is very low (the weighted-average LTV ratio is 52.99%) and the pool consists of well seasoned loans (the weighted-average is 77 months); in addition, credit enhancement has increased to 5.60%, from 2.00% in June 2010, and could continue to increase depending on excess spread. In our opinion, these factors counterbalance the negative arrears developments.

For this transaction, we have applied our general criteria for credit ratings (see "Principles Of Credit Ratings," published on Feb. 16, 2011) and followed the methodology and assumptions outlined in our Italian RMBS criteria (see "Methodology And Assumptions: Update To The Criteria For Rating Italian Residential Mortgage-Backed Securities," published on Jan. 6, 2009, and "Criteria for Rating Italian Residential Mortgage-Backed Securities," published on July 16, 2002). Our view is that Greece's weak economic environment could have a negative effect on obligors repaying their debts, leading to Greek structured finance transactions experiencing higher defaults and delinquencies. To adjust for this increased risk, we approximately doubled our initial default expectations as specified in our Italian RMBS criteria, in our credit analysis for each rating level. We have also applied our increased foreclosure timing assumption of 84 months from 72 months following our assessment of the new bankruptcy law (see "Rating Actions Taken On 28 Tranches In 15 Greek ABS And RMBS Transactions," published on April 7, 2011, and "Cash Flow Criteria for European RMBS Transactions," published on Nov. 20, 2003).

Due to our July 27, 2011 downgrade of Greece to CC/Negative/C and the application of our criteria, in our current assessment of Greek country risk in structured finance transactions backed by Greek assets, the maximum achievable rating is 'BB+' (see "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published on April 8, 2011). This is subject to further adjustments if our view of Greece's country risks changes.

On July 27, 2011, we published an article where we indicated that our transfer and convertibility (T&C) assessment for Greece would be reset if it were to leave the single currency (see "Long-Term Sovereign Rating On Greece Cut To 'CC' On Likely Default; Outlook Negative," published on July 27, 2011). This would lead to a reassessment and possible lowering of our structured finance country rating ceiling. Furthermore, were Greece to leave the single currency, the transaction may become exposed to unhedged currency risk, in our opinion. Both of these considerations would likely lead to further rating action on all tranches in this transaction.

Both counterparties to this transaction (Citibank N.A. and Barclays Bank PLC) have higher ratings than the ratings on the notes; therefore, the ratings on the counterparties do not influence our ratings on the notes.

STANDARD & POOR'S 17G-7 DISCLOSURE REPORT

SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating relating to an asset-backed security as defined in the Rule, to include a description of the representations, warranties and enforcement mechanisms available to investors and a description of how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities. The Rule applies to in-scope securities initially rated (including preliminary ratings) on or after Sept. 26, 2011.

If applicable, the Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at