GBP1.75 billion of debt securities affected
London, 05 April 2013 -- Moody's Investors Service assigned definitive credit ratings to the following
classes of notes issued by Permanent Master Issuer PLC:
....GBP1,250M Series 1 Class 1A Floating
Rate Notes due 2042, Assigned Aaa (sf)
....GBP500M Series 1 Class 1M Floating Rate
Notes due 2042, Assigned A2 (sf)
Moody's also affirms the existing ratings of notes issued by Permanent
Master Issuer plc.
RATINGS RATIONALE
The notes are backed by a pool of prime UK residential mortgages originated
by Bank of Scotland plc ("BOS", A2/ P-1), originated
under the 'Halifax' brand. This represents the nineteenth issue
out of the Permanent Master Trust structure, and the tenth using
Permanent Master Issuer plc. At closing the trust property for
this transaction is approximately GBP 27.0 billion of loans.
The reserve fund will be funded to 2.0% of the combined
total of the Funding 2 Rated Notes and Z Loan outstanding at closing and
the total credit enhancement for the Aaa (sf) rated notes will be 16.9%.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the portfolio
expected loss and MILAN Credit Enhancement (CE), as well as the
transaction structure.
The following two amendments to the rating triggers have been made at
the time of issuance:
removal of trigger to stop addition of new assets to the trust.
Previously upon downgrade of the seller below P-1 the seller would
have been unable to sell new loans into the trust without consent of the
trustee. Bank of Scotland will instead now provide a solvency certificate
if its rating falls below P-1 and new loans are sold to the trustee.
This will mitigate the clawback risk associated with the possibility that
the sale of assets into the trust would be performed by an insolvent entity;
and
once the previously issued notes have been repaid the trigger redirecting
direct debits into a collection account with a P-1 rating should
the then collection account bank be downgraded below P-1 will be
removed. This will be mitigated by the daily transfer of collections
to the trustee GIC account so cash accumulation in Bank of Scotland's
collection account will be limited to one business day. Moody's
has incorporated the impact by modelling the possible commingling risk
associated with removal of the rating trigger on the collection account
following the repayment of the existing notes in the ratings of the series
2013-1 notes.
The portfolio expected loss of 1.3% of the portfolio balance
at closing (Permanent 2011-2: 1.0%) is above
the average for other UK Prime RMBS Master Trusts and takes into account
(i) the performance of the seller's precedent transactions, (ii)
benchmark with comparable transactions in the UK market and (iii) the
current economic conditions in the UK. The increase in the expected
loss since the prior issuance reflects the worsening performance following
an increase in SVR in 2012 with three-month arrears increasing
from 1.8% (March 2011) to 3.2% (Feb 2013).
The MILAN CE of 11.6% is above the average for other UK
Prime RMBS Master Trusts and takes into account factors including (i)
the historic collateral performance as described above; (ii) the
weighted average current loan-to-value of 66.4%
which is in line with the sector average; (iii) 45.2%
of interest only loans and 7.3% of arrears loans; and
(iv) the revolving nature of the pool.
The V Score for this transaction is Low/Medium, which is in line
with the score assigned for the UK Prime RMBS sector. Although
in line with the V Score for other prime UK RMBS Moody's noted the unavailability
of certain loan-by-loan information such as the employment
type and the fast track indicator. However, this is partially
mitigated by the conservative view of these characteristics assumed in
the analysis and depth and quantity of historical performance data provided
by the originator. V Scores are a relative assessment of the quality
of available credit information and of the degree of dependence on various
assumptions used in determining the rating. High variability in
key assumptions could expose a rating to more likelihood of rating changes.
The V Score has been assigned accordingly to the report "V Scores and
Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April
2009.
Moody's Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's structured
finance security may vary if certain input parameters used in the initial
rating process differed. The analysis assumes that the deal has
not aged and is not intended to measure how the rating of the security
might migrate over time, but rather how the initial rating of the
security might have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA RMBS transaction are calculated
by stressing key variable inputs in Moody's primary rating model.
If the portfolio expected loss was increased from 1.3% of
current balance to 3.9% of current balance, and the
MILAN CE was increased from 11.6% to 18.6%,
the model output indicates that the class 1A notes would achieve Aaa(sf)
assuming that all other factors remained equal.
The principal methodology used in these ratings was Moody's Approach to
Rating RMBS Using the MILAN Framework published in March 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Other Factors used in these ratings are described in Global Structured
Finance Operational Risk Guidelines: Moody's Approach to Analyzing
Performance Disruption Risk published in June 2011.
Moody's noted that on 2 July 2012, it released a Request for Comment,
in which the rating agency has requested market feedback on potential
changes to its rating implementation guidance for its approach to assessing
linkage to swap counterparties in structured finance cashflow transactions.
If the revised rating implementation guidance is implemented as proposed,
the rating on certain notes may be negatively affected. Please
refer to Moody's Request for Comment, entitled "Approach to
Assessing Linkage to Swap Counterparties in Structured Finance Cashflow
Transactions: Request for Comment" for further details regarding
the implications of the proposed methodology changes on Moody's
ratings.
In rating this transaction, Moody's used a Master Trust model to
assess the cash flows and determine the loss for each tranche.
The cash flow model evaluates all default scenarios that are then weighted
considering the probabilities of the lognormal distribution assumed for
the portfolio default rate. In each default scenario, the
corresponding loss for each class of notes is calculated given the incoming
cash flows from the assets and the outgoing payments to third parties
and noteholders. Therefore, the expected loss or EL for each
tranche is the sum product of (i) the probability of occurrence of each
default scenario; and (ii) the loss derived from the cash flow model
in each default scenario for each tranche.
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
REGULATORY DISCLOSURES
Moody's did not receive or take into account any third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments in these transactions.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF321928.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jonathan Livingstone
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Michelangelo Margaria
VP - Senior Credit Officer/Manager
Structured Finance Group
Telephone:+39-02-9148-1100
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service assigned definitive credit ratings to two classes of UK RMBS notes issued by Permanent Master Issuer PLC
