Moody’s says made error on rating Lloyds ABS deal

* Bank forced to put extra 20 mln stg into reserve account

* Moody’s says miscalculated capital structure

By Alex Chambers

LONDON, July 21 (BestGrowthStock) – Moody’s (MCO.N: ) said it
miscalculated the ratings on a bond arranged by Lloyds (LLOY.L: ),
forcing the British bank to inject another 20 million pounds
($30.61 million) into a reserve account.

The 761.5 million pounds securitization, called Sandown
Gold, is backed by a portfolio of business loans to small and
medium sized enterprises. Moody’s rated five tranches, of which
the two most subordinate were affected by the error.

“Following a review of the transaction, Moody’s discovered
an error in its calculations in relation to the capital
structure,” Moody’s said in a report on its website dated July
15.

“When calculated correctly, this would have had a negative
impact on the originally assigned provisional ratings on both
the Class B and Class C Notes,” the report said.

To avoid a downgrade, Lloyds pumped an extra 20 million
pound injection into the reserve account, which now stands at 70
million pounds, Moody’s said.

Whistleblowers at Moody’s have previously testified to a
Congressional panel about a culture of secrecy around mistakes,
and U.S. lawmakers last year slammed the rating agency over the
practice. [ID:nN30216950]

Lloyds did not respond immediately to requests for comment.

The two affected B and C classes were 110 million pounds and
55.7 million pounds and rated Aa3 and Baa2 respectively.

Moody’s confirmed the amended size of the reserve account
but did not respond to requests on what the ratings would have
fallen to had it rated the Sandown Gold structure correctly.

The two tranches were part of three (A2, B and C) retained
by Lloyds, which sold two further tranches — the A1A and A1B
classes, sized at 350 million pound and 235 million euros
($303.3 million) respectively — to investors.

The securitisation sector has been tarnished by huge losses
suffered by banks and investors from U.S. sub prime
mortgage-related securities.

Rating agencies have been blamed for giving top ratings on
paper that turned worthless in the financial crisis.

The European Regulation of Credit Rating Agencies directive
forces ratings agencies to add a suffix to their structured
finance ratings from this summer.

Another agency, Fitch, also rated Sandown Gold but it did
not assign ratings on the two tranches affected by Moody’s
mistake.

It gave Triple A ratings to the A1A, A1B and A2 tranches and
said in its final rating assignment that the ratings of A1A and
A1B were based on the portfolio’s collateral quality, credit
enhancement and the substantial reserve account, which was seen
as a particular strength.

Stock Market Money

($1=.6534 Pound)

($1=.7748 Euro)

(Editing by David Cowell)

Moody’s says made error on rating Lloyds ABS deal