London, 25 March 2014 -- Moody's Investors Services has today taken multiple rating actions
on the notes in Arran Residential Mortgages Funding 2011-1 Plc,
Arran Residential Mortgages Funding 2011-2 Plc, Atomium Mortgage
Finance 2003-I B.V., Greenock Funding No.
5 Plc, Paragon Mortgages (No. 7) PLC, Green Apple B.V.
(2007-1 NHG Portfolio) and the Class Cb cross currency counterparty
instrument rating (CIR) in Paragon Mortgages (No. 9) PLC.
Today's rating actions are prompted by exposure to Royal Bank of
Scotland plc, Royal Bank of Scotland N.V. or National
Westminster Bank PLC (collectively referred to as RBS in this press release).
The long-term rating of RBS was downgraded to Baa1 from A3 on 13
March 2014 (https://www.moodys.com/research/Moodys-downgrades-RBSs-supported-long-term-ratings-to-Baa1-with--PR_294433).
In total, ratings on 3 notes are affirmed, 1 note is confirmed,
8 notes are placed on review for downgrade, and 12 notes and CIR
are downgraded. For a detailed list of affected ratings,
see towards the end of the press release before the regulatory disclosures.
RATINGS RATIONALE
-- Arran Residential Mortgages Funding 2011-1 Plc
(Arran 2011-1) and Arran Residential Mortgages Funding 2011-2
Plc (Arran 2011-2).
For both transactions, RBS acts as servicer and cash manager.
There is no backup arrangement in place for either of these roles and
no counterparty transfer rating triggers or facilitator. Additionally,
RBS is acting as the collection account bank. The downgrade of
RBS increases payment disruption risk in the transactions. Following
Moody's "Global Structured Finance Operational Risk Guidelines"
published in June 2013 (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF328657),
Moody's places the ratings of Class A2a, A2b, A2c in
Arran 2011-1 and Class A2a, A2b, A2c, A3a,
A3c in Arran 2011-2 on review for possible downgrade.
-- Atomium Mortgage Finance 2003-I B.V.
Moody's placed the rating of Class A on review for possible downgrade
on 21 Feb 2014 due to the transaction's exposure to RBS acting as
issuer account bank. The transaction has a low pool factor of 6.7%
and an overcollateralization of 18.8%. Class A benefits
from a further credit enhancement of 36.78% through subordination.
The credit enhancement level is sufficient to mitigate the risk arising
from the exposure to RBS at the current rating level. However,
the rating of Class A is still constrained by payment disruption risk
arising from lack of backup servicer arrangement as assessed in the prior
rating action on 15 Jul 2011 (https://www.moodys.com/research/Moodys-Investors-Service-has-today-downgraded-Belgium-RMBS-notes-issued--PR_222713).
Consequently, Moody's confirms the rating of Class A at Aa3
(sf). Moody's also affirms Class B rating at A2 (sf) in this
review.
-- Green Apple B.V. (2007-I NHG Portfolio)
Moody's placed the rating of Class B on review for possible downgrade
on 21 Feb 2014 due to the transaction's exposure to RBS acting as
swap counterparty. The rating triggers for posting collateral and
swap replacement are set at loss of Baa1/P-2 and loss of Baa2/P-3,
respectively. As part of its review, Moody's has incorporated
the risk of additional losses on the notes in the event of the transaction
becoming unhedged following a swap counterparty default. This assessment
resulted in a downgrade of the rating of Class B to Baa3 (sf).
RBS is also acting as issuer account bank in the transaction, however,
this exposure is not a driver of today's action. The ratings
of Classes A and C were affirmed during the review.
-- Greenock Funding No. 5 Plc
RBS is the counterparty in all major roles in the transaction: issuer
account bank, collection account bank, servicer, cash
manager and swap counterparty. The transaction's exposure
to potential operational or payment disruption risk is therefore strongly
linked to the credit quality of RBS. Moody's put all rated
notes on review for possible downgrade on 21 February 2014. As
a result of the downgrade of RBS, and following Moody's "The
Temporary Use of Cash in Structured Finance Transactions: Eligible
Investment and Bank Guidelines" published in March 2013 (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF316982),
Moody's concludes the rating review and downgrades all rated notes
from Aa3 (sf) to A1 (sf).
-- Paragon Mortgages (No. 7) PLC
All notes were downgraded and remained on review for possible further
downgrade due to the transaction's exposure to RBS as swap counterparty
on 6 March 2014 (https://www.moodys.com/research/Moodys-downgrades-and-leaves-on-review-for-possible-downgrade-the--PR_294283).
The counterparty transfer rating trigger is set at loss of Baa2.
The downgrade of RBS increases the probability of the transaction becoming
unhedged. Consequently, Moody's concludes the review
and downgrades the ratings of Classes A1a, A1b, A1c to A1
(sf) and Classes B1a, B1b to Baa3 (sf).
-- Paragon Mortgages (No. 9) PLC Class Cb Cross Currency
Swap CIR
CIR measures the risk posed to a counterparty arising from a special purpose
vehicle's (SPV) inability to honor its obligations under the referenced
financial contract. The ratings do not address potential losses
in relation to any market risk associated with the transaction.
Following the updated CIR methodology, "Moody's Approach
to Counterparty Instrument Ratings" published in March 2014 (http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF359353),
the CIR is determined in 2 steps; the first step, expected
loss assuming no counterparty default, and the second step,
counterparty linkage analysis.
The expected loss for the counterparty will usually match the rating of
the pari passu-ranking notes without considering the linkage to
the swap counterparty. For this transaction, Class Cb cross
currency CIR matches Class Cb rating without swap counterparty linkage,
which is currently A2 (sf).
The second step, counterparty linkage analysis, determines
whether the rating from the first step should be capped due to linkage
to the counterparty itself. The swap termination payment in the
event of swap counterparty default will be subordinated in the transaction's
priority of payment. And such payment has to be paid through the
transaction waterfall increasing the possibility that the counterparty
might not receive the payment. Additionally, the swap counterparty
is currently in the money. These factors have negative impact on
the CIR. Despite giving two notches rating uplift from counterparty's
rating in expectation of transfer of swap to a different counterparty,
Moody's determines that the CIR should be capped at one notch above
the counterparty's rating. That's one notch above Baa1.
As a result, Class Cb cross currency CIR is downgraded to A3 (sf)
due to linkage to the swap counterparty itself.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors or circumstances that could lead to a downgrade of the ratings
affected by today's action would be the worse-than-expected
performance of the underlying collateral, and deterioration in the
credit quality of the counterparties. Additionally, for Paragon
Mortgages (No. 9) PLC Class Cb cross currency CIR rating,
no transfer of swap counterparty.
Factors or circumstances that could lead to an upgrade of the ratings
affected by today's action would be the better-than-expected
performance of the underlying assets, and a decline in counterparty
risk.
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.
List of affected ratings
Issuer: Arran Residential Mortgages Funding 2011-1 Plc
....GBP644.7M Class A2a Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
May 17, 2013 Confirmed at Aaa (sf)
....EUR538M Class A2b Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on May 17,
2013 Confirmed at Aaa (sf)
....US$400M Class A2c Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
May 17, 2013 Confirmed at Aaa (sf)
Issuer: Arran Residential Mortgages Funding 2011-2 Plc
....GBP70M Class A2a Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on May 17,
2013 Confirmed at Aaa (sf)
....EUR220M Class A2b Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on May 17,
2013 Confirmed at Aaa (sf)
....US$670M Class A2c Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
May 17, 2013 Confirmed at Aaa (sf)
....GBP150M Class A3a Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on May 17,
2013 Confirmed at Aaa (sf)
....US$500M Class A3c Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
May 17, 2013 Confirmed at Aaa (sf)
Issuer: ATOMIUM MORTGAGE FINANCE 2003-I B.V.
....EUR2104.5M Class A Notes,
Confirmed at Aa3 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....EUR43M Class B Notes, Affirmed A2
(sf); previously on Dec 18, 2003 Definitive Rating Assigned
A2 (sf)
Issuer: Greenock Funding No.5 Plc
....GBP1382.9M Class A1 Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP1382.9M Class A2 Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP1382.9M Class A3 Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP1382.9M Class A4 Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP1382.9M Class A5 Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP1728.944456M Class AVFN Notes,
Downgraded to A1 (sf); previously on Feb 21, 2014 Aa3 (sf)
Placed Under Review for Possible Downgrade
Issuer: Paragon Mortgages (No. 7) PLC
....US$450M Class A1a Notes,
Downgraded to A1 (sf); previously on Mar 6, 2014 Downgraded
to Aa3 (sf) and Remained On Review for Possible Downgrade
....GBP220M Class A1b Notes, Downgraded
to A1 (sf); previously on Mar 6, 2014 Downgraded to Aa3 (sf)
and Remained On Review for Possible Downgrade
....EUR500M Class A1c Notes, Downgraded
to A1 (sf); previously on Mar 6, 2014 Downgraded to Aa3 (sf)
and Remained On Review for Possible Downgrade
....US$82.5M Class B1a Notes,
Downgraded to Baa3 (sf); previously on Mar 6, 2014 Downgraded
to Baa1 (sf) and Remained On Review for Possible Downgrade
....EUR65M Class B1b Notes, Downgraded
to Baa3 (sf); previously on Mar 6, 2014 Downgraded to Baa1
(sf) and Remained On Review for Possible Downgrade
Issuer: Paragon Mortgages (No. 9) PLC
....Cross Currency Swap for Class Cb Notes,
Downgraded to A3 (sf); previously on Feb 21, 2014 A2 (sf) Placed
Under Review for Possible Downgrade
Issuer: Green Apple B.V. (2007-I NHG Portfolio)
....EUR1486.5M Class A Notes,
Affirmed A1 (sf); previously on Dec 20, 2013 Upgraded to A1
(sf)
....EUR10.5M Class B Notes, Downgraded
to Baa3 (sf); previously on Feb 21, 2014 Baa1 (sf) Placed Under
Review for Possible Downgrade
....EUR3M Class C Notes, Affirmed Baa3
(sf); previously on Dec 20, 2013 Upgraded to Baa3 (sf)
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third party assessment
on the due diligence performed regarding the underlying assets or financial
instruments related to the monitoring of these transactions in the past
six months.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
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.
The person who approved Green Apple B.V. (2007-I
NHG Portfolio) credit ratings is Anthony Parry, VP-Sr Credit
Officer, SFG, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS:
44 20 7772 5454.
The person who approved ATOMIUM MORTGAGE FINANCE 2003-I B.V.,
Paragon Mortgages (No. 7) PLC, Paragon Mortgages (No.
9) PLC, Greenock Funding No.5 Plc, Arran Residential
Mortgages Funding 2011-1 Plc, and Arran Residential Mortgages
Funding 2011-2 Plc credit ratings is Christophe de Noaillat,
MD-Structured Finance, SFG, JOURNALISTS: 44 20
7772 5456, SUBSCRIBERS: 44 20 7772 5454.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Kevin Ma
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
Christophe de Noaillat
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Maria Divid
Analyst
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 Takes Multiple Rating Actions on 5 UK, 1 Belgian and 1 Dutch RMBS Transactions
