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Announcement:

Moody's: No Rating impact following amendments to Silverstone Master Issuer

03 Oct 2014

London, 03 October 2014 -- Moody's Investors Service has determined that the proposed restructuring (the "Proposal"), if implemented, will not, in and of itself and at this time, result in a downgrade or withdrawal of the current ratings of the notes (the "Notes") issued by Silverstone Master Issuer PLC (the "Issuer"). Moody's opinion addresses only the credit impact of the Proposal, and Moody's is not expressing any opinion as to whether the Proposal has, or could have other, non-credit related effects that may have a detrimental impact on the interests of note holders and/or counterparties.

The components to the proposed restructuring are as following:

1. Amendment to the account bank structure

It is proposed to convert the Mortgage Trustee GIC Account to a collateralised GIC account and to modify the Funding GIC Account by establishing an additional account, the Funding Collateralised GIC Account. The Funding GIC Account is required to hold a minimum amount of funds to ensure the timely payment of interest on the rated notes and payment of senior fees at the next interest payment date, amounts held in the reserve and liquidity account, amounts accumulated for the repayment of Money Market notes and amounts due on notes with a final maturity date within two years. Any amount that is not required to be held in the Funding GIC Account can be transferred to the Funding Collateralised GIC Account. Such funds would remain in the Funding Collateralised GIC Account until the next payment date and could include all principal accumulated for the repayment of non-Money Market notes and any revenue amount that is in excess to the amounts required to be held in the Funding GIC Account. All amounts received in the Mortgage Trustee GIC Account will be subject to collateralization once the account banks is rated below A3. The Funding Collateralised GIC Account and Mortgage Trustee GIC Account will not be required to replace themselves upon a rating event but are required to post collateral in the form of sovereign bonds or subordination. The Funding GIC Account will remain obligated to replace themselves upon loss of A2/ P-1. In the case for the Mortgage Trustee GIC Account the removal of the transfer obligation is replaced by the obligation to appoint a stand-by Mortgage Trustee Account Bank if the rating of the account banks is below A3. The Account Bank criteria are in line with those specified in "The Temporary Use of Cash In Structured Finance Transactions: Eligible Investment and Bank Guidelines" published on March 2013. However, Moody's notes that there is linkage to the Mortgage Trustee GIC Account bank. In the event funds held in the Mortgage Trustee GIC Account are not accessible prior to an IPD, the transaction relies exclusively on proceeds accumulation over the previous two months and the reserve funds being sufficiently funded to ensure timely payment of interest under the notes.

2. Amendments to authorized investments/ Establishment of Panel Bank arrangement

The definition of Authorised Investments is proposed to be amended to include Aaa rated money market funds. In addition, a panel bank arrangement is proposed whereby funds held in the funding account can be invested up to the next IPD with banks that are at least rated P-1 and A2. The panel bank process as well as the amendments to the Authorised Investments and criteria are in line with the Eligible Investments specified in "The Temporary Use of Cash In Structured Finance Transactions: Eligible Investment and Bank Guidelines" published on March 2013.

3. Amendments to the redirection of the direct debits

At present, if the servicer is downgraded below P-1 all direct debits made into the collection account are required to be redirected to an appropriately rated bank. It is proposed that this requirement for redirection is removed. Moody's notes that around 77% of the borrowers within the Silverstone pool pay via direct debit and that there is a daily sweep for direct debits from the Collection Account into the Mortgage Trustee GIC Account.

4. Removal of collateral from the trust.

The Proposal contains a reduction of the current pool by approximately 30% through the removal of GBP5.5bn of fixed rate loans, and an additional reduction of GBP2.6bn random selected loans.

5. Cancellation of retained note.

As part of the restructuring proposal GBP9.5bn corresponding to Class 3A1, 3A2, 3A3, 3Z1, 3Z2 and 3Z3 of the 2011-1 issuance, fully retained by the originator, are to be redeemed.

6. Amendment to the addition of new loans conditions

Under the Proposal the Issuers will remove the Seller rating triggers that must be satisfied to add new loans to the pool. The removal of these triggers would allow the seller to add new assets to the pool until a insolvency event of the Seller occurs. However, the Seller would remain obligated to issue a solvency certificate for each addition if their short term rating falls below P-1.

7. Amendment to the Minimum Seller Share calculation

The minimum seller share, currently sized at 6% of the pool balance, is in place to protect the notes against certain transactions risks such as the risk of borrowers exercising any set-off rights or making additional drawings under the flexible loans. The proposal will result in a more dynamic calculation by sizing the deposit set-off risk to cover the deposit above the government guaranteed amount. Moody's notes that such sizing may not be sufficient to cover for full deposit set-off risk in all cases as borrowers that are not entitled to full compensation may choose not to claim under the guarantee scheme as detailed in "Moody's Approach to Assessing Set-off Risk for EMEA Securitisation and Covered Bonds Transactions" published on October 2013.

8. Amendment to the servicer replacement condition

Under the Proposal, in the event the servicer is downgraded below Baa3, a back-up servicer will be appointed instead of appointing a new servicer. As a result the servicer would continue to act as the servicer until there is a servicer termination event.

9. Amendment to the variable rate swaps

At present there are four swaps covering fixed rate loans, mortgage loans linked to Nationwide's standard mortgage rate ("SMR"), the base mortgage rate ("BMR"), or the Bank of England bank base rate ("BBR"). These swap are typically required to post collateral upon a P-1 trigger breach and to replace themselves upon a P-2 trigger breach. The Proposal seeks to remove the collateral and replacement triggers for the SMR and BMR swaps detailed in the respective swap documentation. The Proposal also includes provisions for the servicer to set rates on the variable rate loans (SMR & BMR) at or above a specific rate to ensure a minimum yield on these loans. The Tracker swap is proposed to be removed completely.

10. Introduction of a back-up cash manager

It is proposed to appoint a back-up cash manager upon the cash manger being rated below Baa3.

11. Changes to the Issuer Account Bank transfer requirement

The issuer account bank is currently required to be transferred upon loss of P-1. It is proposed to change the transfer requirement to upon a loss of A3.

Moody's considers the amendments, if implemented, would not, in and of itself and at this time, result in a downgrade or withdrawal of the current ratings of the Notes issued by the Issuers.

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in March 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's will continue monitoring the ratings. Any change in the ratings will be publicly disseminated by Moody's through appropriate media.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Steven Becker
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

Annabel Schaafsma
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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: No Rating impact following amendments to Silverstone Master Issuer
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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