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15 Jul 2010
Approx. GBP 761.5 Million equivalent affected
London, 15 July 2010 -- Moody's Investors Service has affirmed the provisional ratings of five
classes of asset-backed Notes issued by Sandown Gold PLC set out
below, which were assigned on 13 July 2010. This affirmation
follows the discovery of an error in Moody's original calculations
in relation to the capital structure and a subsequent amendment to the
terms of the transaction:
- (P)Aaa to the GBP [350,000,000] Class A1A Asset
Backed Notes due 2038.
- (P)Aaa to the EUR [235,000,000] Class A1B Asset
Backed Notes due 2038.
- (P)Aaa to the EUR [60,000,000] Class A2 Guaranteed
Asset Backed Notes due 2038.
- (P)Aa3 to the GBP [110,000,000] Class B Asset
Backed Notes due 2038.
- (P)Baa2 to the GBP [55,680,000] Class C Asset
Backed Notes due 2038.
Following a review of the transaction, Moody's discovered
an error in its calculations in relation to the capital structure.
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. Moody's notified this rating impact to Sandown
Gold PLC. The decision was made by the arranger to increase the
reserve account in the sum of GBP [20,000,000] increasing
the total reserve account balance to GBP [70,000,000].
On the basis of this change to the structure, Moody's is now
able to affirm the originally assigned ratings. Neither the credit
quality of the portfolio nor Moody's analysis of the transaction
has otherwise changed. The provisional ratings of the Class A1A,
Class A1B and Class A2 notes were not affected and remain (P)Aaa.
Moody's previously assigned provisional ratings on the five classes
of asset-backed Notes issued by Sandown Gold PLC on 13 July 2010.
The receivables have been originated by Lloyds TSB Bank plc ("LTSB") rated
Aa3/P-1. The subject transaction is a non-revolving
cash securitization backed by a portfolio of amortising and bullet term
loans granted to small and medium size enterprises in the UK.
In Moody's view, the strengths of this transaction include,
among others: (i) the financial strength of LTSB, (ii) a 8.63%
reserve fund, funded at closing; (iii) a 2.3%
liquidity facility; (iii) a high collateral ratio; and (iv)
triggers in place to mitigate commingling, set-off and certain
operational risks. However, Moody's notes that the transaction
includes several challenging features, namely: (i) exposure
to the construction and building industry sector as well as other industry
concentrations; (ii) the presence of loans with bullet maturities;
(iii) rating linkage to LTSB; (iv) limited historical data available;
(v) the inclusion of loans in arrears. Moody's factored these aspects
in its quantitative assessment of the transaction.
The structure envisions credit protection to be provided by a non-amortising
reserve fund, excess spread and subordination. An additional
set-off reserve (provided by LTSB) will provide further protection
against set-off risks. This set-off risk will be
fully cash-collateralised via a set-off reserve if LTSB's
rating fall below certain levels.
Moody's based the ratings primarily on: (i) an evaluation of the
underlying portfolio of loans; (ii) historical performance and bank
internal information; (iii) the credit enhancement provided by the
reserve fund, excess spread and the subordination of the notes;
(iv) the legal and structural integrity of the transaction; and (v)
the servicing arrangements including LTSB's role as day to day servicer
for the entire loan portfolio. The main parameter used in deriving
the default distribution (using CDOROM) resulted in a mean cumulative
default rate of 11.4% (equivalent to a Ba3 rating proxy
over the weighted average life of the assets). The coefficient
of variation of the default distribution is equivalent to approximately
56%. The timing of defaults (in the base case) is assumed
to occur over 5 years. Furthermore, Investors should note
that the Class A2 Notes benefit from a guarantee issued by the Class A2
The V Score for this transaction is Medium. One of the main areas
of relative uncertainty in the transaction is the limited amount of relatively
limited historical default data. The data consists of the number
of defaulted loans (during a one year period) per internal rating category
and covers the timeframe from October 2005 until January 2009.
This period does not cover a full economic cycle although it does capture
stressed data up to January 2010. Moody's did not receive any cumulative
default vintage curves. Therefore, the default assumption
was mainly derived from the weighted-average rating assumption
and life of the portfolio inferred from the characteristics of the portfolio.
V-Score has been assigned accordingly to the report "V-Scores
and Parameter Sensitivities in the EMEA Small-to-Medium
Enterprise ABS Sector" published in February 2009. 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.
Moody's issues provisional ratings in advance of the final sale of securities,
but these ratings only represent Moody's preliminary credit opinion.
Upon a conclusive review of the transaction and associated documentation,
Moody's will endeavour to assign definitive ratings to the notes.
A definitive rating may differ from a provisional rating. Moody's
will disseminate the assignment of any definitive ratings through its
Client Service Desk. The ratings address the expected loss posed
to investors by the legal final maturity (2038). In Moody's opinion,
the structure allows for timely payment of interest and ultimate payment
of principal on or before the final legal maturity date. Moody's
ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
The principal methodology used in rating Sandown Gold PLC was the rating
methodology for EMEA SME ABS transactions as described in the Rating Methodology
reports "Refining the ABS SME Approach: Moody's Probability of Default
assumptions in the rating analysis of granular Small and Mid-sized
Enterprise portfolios in EMEA", March 2009 and "Moody's Approach
to Rating Granular SME Transactions in Europe, Middle East and Africa",
June 2007 available 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. Further information on Moody's analysis of
this transaction is available on www.moodys.com.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
Moody's will monitor this transaction on an ongoing basis. For
updated monitoring information, please contact firstname.lastname@example.org.
To reserve a copy of Moody's revised Pre-Sale Report on this transaction,
please contact the Moody's Client Service Desk in London at 44 (0)20 7772
5454 or visit our web site http://www.moodys.com.
MD - Structured Finance
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms provisional ratings of ABS Notes to be issued by Sandown Gold PLC
No Related Data.
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