RPT-Fitch Downgrades Credito Fondiario's Italian Servicer Ratings

Tue May 13, 2014 8:28am EDT

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May 13 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has downgraded Credito Fondiario S.p.A.'s Italian Residential and Commercial Primary Servicer Ratings to 'RPS3+' and 'CPS3+' from 'RPS2-' and 'CPS2-', respectively, and removed them from Rating Watch Negative (RWN).

In October 2013, Morgan Stanley (MS, A/Stable/F1+) sold 100% of Credito Fondiario's share capital to three entities (Tages Holding S.p.A. - 85%; Harvest Investment Partners B.V. - 6.75%; Harvip Investimenti S.p.A. - 8.25%). Although an operational restructure was announced in January 2014, the full impact of the sale on the company's strategy, operational performance and future infrastructure investment has yet to be determined.

As a standalone entity, Credito Fondiario has consistently made losses over the past seven years, and has been reliant on capital injections into the business from MS. The new owners do not have a credit rating nor do they benefit from the support of a rated parent, whilst their ongoing financial support for Credito Fondiario, and the size of that support, has yet to be demonstrated.

The change in ownership has led to the employment of a new senior management group, with just one senior team member remaining in place from the time of MS ownership. Industry experience among the senior team remains high, averaging over 20 years, but company tenure is, as would be expected, low compared with peers.

In January 2014, 90 people were made redundant from Credito Fondiario, from a staff of 145. The vast majority of redundancies were from the origination and support functions. While the operational structure is now more streamlined, in Fitch's opinion, with a reduced layer of management and a less experienced workforce, key man risk is greater and operational performance has yet to be tested with this new structure.

Since the ownership change, Credito Fondiario has appointed a new internal auditor. This individual is an experienced industry professional, having worked at Credito Fondiario as Head of loan administration and customer relationships, but does not have direct audit experience. Credito Fondiario previously utilised the MS internal audit function for additional support and resource when required.

The operational restructure has seen the IT department reduce to 6 people from 14 and whilst this reflects the needs of a smaller business overall, the day-to-day impact is yet to be tested. MS continued to invest in IT up to the sale, but while there is uncertainty as to future investment in infrastructure from the new owners, the servicer is now working on a project to upgrade the IT platform.

Credito Fondiario acts as primary servicer for a EUR277m residential servicing portfolio comprising 3,302 loans (as at year-end 2013). It also acts as primary servicer for 22 commercial loans totalling EUR2bn. It is master servicer for four non-performing loan portfolios totalling EUR1.20bn and 3,326 loans. Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, including a comparison against similar Italian servicers as part of the review process.

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