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Announcement:

Moody's affirms all ratings of UK housing association securitisation Finance for Residential Social Housing PLC ("FRESH")

03 Dec 2010

GBP 785.6 million of debt securities affected

London, 03 December 2010 -- Moody's Investors Service has today affirmed the ratings of the below social housing loan notes issued by Finance for Residential Social Housing PLC (amounts reflect initial outstandings):

- GBP 727.883 million Series 1 Class A1 fixed rate notes due 2058; ratings affirmed at Aaa (sf); previously on 24 April 1997 assigned ratings of Aaa (sf)

- GBP 115.905 million Series 1 Class A2 fixed rate notes due 2058; ratings affirmed at Aaa (sf); previously on 24 April 1997 assigned ratings of Aaa (sf)

- GBP 37.090 million Series 1 Class A3 fixed rate notes due 2058; ratings affirmed at Aa2 (sf); previously on 24 April 1997 assigned ratings of Aa2 (sf)

- GBP 37.090 million Series 1 Class B fixed rate notes due 2058; ratings affirmed at Baa3 (sf); previously on 24 April 1997 assigned ratings of Baa3 (sf)

The Series 1 Class A1, the Series 1 Class A2, the Series 1 Class A3 and the Series 1 Class B notes are collectively referred to as the "Series 1 Notes"

- GBP 40.916 million Series 2 Class A variable rate notes due 2058; ratings affirmed at Aa1 (sf); previously on 24 April 1997 assigned ratings of Aa1 (sf)

- GBP 3.113 million Series 2 Class B variable rate notes due 2058; ratings affirmed at Baa3 (sf); previously on 24 April 1997 assigned ratings of Baa3 (sf)

The Series 2 Class A and the Series 2 Class B notes are together referred to as the "Series 2 Notes". Additionally, there is a Series 3 Note, which is not rated by Moody's. The Series 1 Notes, Series 2 Notes and Series 3 Notes are collectively referred to as the "Notes".

The ratings of the Series 1 Notes and Series 2 Notes were affirmed today due to the continuing good performance of the transaction, which has experienced no arrears since closing.

TRANSACTION OVERVIEW

The Notes are backed by loans made to housing associations and to other social landlords across England and Wales. The loans were originated by two government entities, "The Housing Corporation" and "Tai Cymru" (the "Originators") who were originally tasked with funding affordable housing in the United Kingdom. Neither entity exists anymore, as Tai Cymru merged into the Welsh National Assembly in 1999, and THC was split into the Home & Communities agency and Tenants Services Authority in 2008.

The Originators either directly originated the loans when they were originated after April 1989, or purchased the loans when they were originated between 1961 and April 1989. In November 1995, the UK government announced its intention to dispose of these loans, thus the originators' holdings were sold to Orchardbrook, an SPV with no employees, limited share capital, and third party directors. Orchardbrook's sole purpose was to buy the loans and take legal possession of the loan security and then to sell the loans with the legal possession to Finance for Residential Social Housing PLC ("FRESH", or the "Issuer"). Thus, at closing on 25 March 1997, the Issuer issued the Notes, and used the proceeds of the Notes to purchase the loans from Orchardbrook.

The aggregate loan portfolio as at May 2010 consisted of 6,984 loans to 738 borrowers, secured by first ranking mortgages over 24,369 properties. At closing a proportion of the properties backing the loans also had second ranking mortgage charges over them, however only first ranking mortgage charges have been securitised. All the loans are full recourse to the relevant borrower, who is in each case a social landlords, typically registered, and all the loans are amortising. Thus the primary source of funds to meet the loans' debt service will be the obligation of the borrowers to repay their debt, rather than the rental cashflows arising from the properties mortgaged as security in favour of the Issuer. The portfolio is split into two parts, namely the "Series 1 Loans" which are all fixed rate and back the fixed rate Series 1 Notes, and the "Series 2 Loans" which are all variable rate and back the variable rate Series 2 Notes. The Series 3 Note is backed by excess cashflow arising from the Series 1 Loans and Series 2 Loans.

The loan servicer for the entire FRESH portfolio of Series 1 and Series 2 Loans was originally National Westminster Bank PLC, who was novated to The Royal Bank of Scotland (Aa3, Prime-1) in 2002. Daily management of the portfolio was outsourced via a sub-servicing agreement post closing to Crown Mortgage Management. Several of the loans have been consolidated: these is the result of a borrower grouping together some or all its indebtedness into one loan. When several loans consolidate, release of security is permitted as long as the open market value of the loans remaining exceeds 187.5% of the outstanding loan balance, and as long as the net rental income will cover at least the annual annuity payment due going forwards. A further condition of loan consolidation includes a requirement to fully revalue the properties backing each loan every five years.

SERIES 1 SUMMARY

As at October 2010, the Series 1 Loans had an aggregate outstanding principal balance of GBP 765.8 million, and a weighted average fixed rate of 11.2%. At closing, the Series 1 Loan balance was GBP 928.7 million, with origination dates ranging as far back as 1965, the majority having been originated between 1980 and 1995. The Series 1 Loan origination dates current weighted average origination date is now August 1999, which reflects the significant loan consolidation and loan amortisation since closing.

The Series 1 Loans are relatively long-dated, with a weighted average maturity date in June 2035 and with the last Series 1 loan maturing in October 2053. Moody's Herfindahl index of 107 reflects the fact that the 6,850 loans are by no means evenly distributed. The largest Series 1 loan represents GBP 31.7 million, while there are more than 4,000 loans with an outstanding principal balance of less than GBP 0.010 million. The top twenty-five loans represent GBP 293.4 million of the overall principal balance outstanding, approximately 38%.

The GBP 755.6 million Series 1 Notes are all fixed rate, and have interest rates ranging from 8.369% per annum (Series 1 A1) to 8.769% per annum (Series 1 B). At closing, the Series 1 Note balance was GBP 918 million. The Series 1 Notes have differing rules for scheduled and for unscheduled principal allocation. Scheduled principal received from the underlying loans will be applied pro-rata to Series 1 Noteholders, unless, inter alia, the arrears have exceeded 0.55%, whereupon, the principal will be allocated either fully sequentially, or to Series 1 Class A1 and A2 pro rata, then sequentially. At the present time, none of the triggers to allocate principal sequentially has been breached; therefore, scheduled principal is being allocated pro rata. Unscheduled principal is allocated as follows: To Series 1 A2, to Series 1 A3, to Series 1 A1 then to Series 1 B.

Currently there are no arrears and the Series 1 Notes have performed well since the closing date.

SERIES 2 SUMMARY

As at October 2010, the Series 2 Loans had an aggregate outstanding principal balance of GBP 20.3 million. At closing, the Series 2 Loan balance was GBP 44.2 million. The Series 2 Loans interest rate is one percent above the National Loan Funds 25 year rate. This rate is set by the UK Government Debt management office and is therefore variable.

At closing, the origination dates of the Series 2 Loans ranged back to 1971, with the majority of loans having been originated between 1991 and 1995. Unlike the Series 1 Loans, the Series 2 Loans cannot consolidate. Therefore, it is through loan repayment that the current average Series 2 Loan origination date has shifted to July 1997. The Series 2 Loans are shorter dated than the Series 1 Loans, having a weighted average maturity date in May 2023. The longest maturing Series 2 loan matures in March 2027.

Moody's Herfindahl index of 61.5 reflects the fact that the 134 Series 2 Loans have a more even principal balance distribution than the Series 1 Loans. The largest Series 2 loan balance outstanding is GBP 0.901 million while the average balance is GBP 0.155 million. The top twenty-five loans' aggregate principal balance amounts to GBP 11.145 million, or approximately 54% of the outstanding Series 2 Loan balance.

The GBP 20.26 million Series 2 Notes are all floating rate, with their interest rate set at 0.75% above the National Loan Funds 25 year rate. At closing, the Series 2 Note balance was GBP 44 million. Similarly to the Series 1 Notes, scheduled principal received from the underlying Series 2 Loans will be applied pro-rata between all Series 2 Noteholders, unless arrears have exceeded 0.55%, whereupon, the principal will be allocated sequentially to Series 2 Class A and then to Series 2 Class B. At the present time, the sequential amortisation trigger has not been breached; therefore, scheduled principal is being allocated pro-rata.

Currently there are no arrears and the Series 2 Notes have performed well since the closing date.

RATING APPROACH AND RATING RATIONALE

Moody's has received an updated pool cut for the Series 1 and Series 2 Loans, dated May 2010. Using this pool cut, Moody's was able to update its models in order to establish whether the current portfolio characteristics and transaction performance would support the current ratings.

Based on the pool cut and on the continuing good performance reported by the servicer, Moody's has today affirmed the current ratings. Going forwards, Moody's will continue to closely monitor the performance of the transaction, and the health of the social housing sector as a whole. Given that the borrowers are all social housing sector borrowers, Moody's ability to affirm ratings in future will also depend on its medium to long-term view of that sector. Please see the recent report: "English Housing Associations: No immediate rating impact from changes, although rent flexibility is credit-positive" dated 25 November 2010 which can be found on Moodys.com.

Moody's analysed and will monitor this transaction using the rating methodology for EMEA CMBS transactions as described in the Rating Methodology report "Update on Moody's Real Estate Analysis for CMBS Transactions in EMEA," June 2005. This can be found on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. Moody's last Performance Overview for this transaction was published on 16 November 2010.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of the website, at www.moodys.com/SFQuickCheck.

More information about the transaction can be found on www.moodys.com -- alternatively, please contact the Moody's client service desk in London on 44(0) 20 7772 5454.

London
Lisa Macedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Christophe de Noaillat
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom

Moody's affirms all ratings of UK housing association securitisation Finance for Residential Social Housing PLC ("FRESH")
No Related Data.
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