London, 26 May 2016 -- Moody's Investors Service has assigned definitive credit ratings to the
following Notes issued by Holmes Master Issuer Series 2016-1:
Issuer: Holmes Master Issuer Series 2016-1
....USD 375,000,000 Series 2016-1
Class A1 Floating Rate Notes due April 2017, Definitive Rating Assigned
P-1 (sf)
....GBP 340,000,000 Series 2016-1
Class A2 Floating Rate Notes due October 2054, Definitive Rating
Assigned Aaa (sf)
Moody's assigned provisional ratings to these notes on 16th of May.
Moody's has not assigned any ratings to the Class Z notes due October
2054.
Moody's also affirms the existing ratings of notes issued by Holmes Master
Issuer plc.
RATINGS RATIONALE
The notes are backed by a pool of prime UK residential mortgages originated
by Santander UK PLC (Santander) (Aa3/P-1). This represents
the twenty-fourth issue out of the Holmes Master Trust structure.
At closing the Trust Property for this transaction will consist of approximately
GBP 6.5 billion of loans. The reserve fund is funded to
5.2% of the total notes outstanding at closing and the total
credit enhancement for the Class A notes is 23.1%.
The ratings are primarily based on the credit quality of the portfolio,
its diversity, the structural features of the transaction and its
legal integrity. From the assessment of the credit quality of the
underlying mortgage loan pool, Moody's determined the portfolio
expected loss of 1.0% and MILAN Credit Enhancement (CE)
of 8.0%.
Portfolio expected loss of 1.0%: This is in line with
the UK Prime sector average and is based on Moody's assessment of the
lifetime loss expectation for the pool taking into account (i) the collateral
performance of Santander originated loans to date, as provided by
the originator and observed in the Holmes Master Trust; (ii) the
current macroeconomic environment in the UK and the potential impact of
future interest rate rises on the performance of the mortgage loans;
and (iii) the potential drift in asset quality since the pool can be substituted
continuously subject to certain triggers.
MILAN Credit Enhancement of 8.0%: This is lower than
the UK Prime sector average of 9.0% and follows Moody's
assessment of the loan-by-loan information taking into account
the following key drivers (i) the historic collateral performance of as
described above; (ii) the weighted average current loan-to-value
of 61.8% which is lower than the average seen in the sector;
(iii) the presence of an asset scoring test to limit potential substitution
risk.
The short term rating on the A1 notes addresses the probability of default
by the legal final maturity. The long term ratings on the A2 notes
address the expected loss posed to investors by the legal final maturity.
In Moody's opinion, the structure allows for timely payment of interest
and principal with respect of the notes by the legal final maturity.
Moody's ratings only address the credit risk associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield to investors.
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 1.0% of
current balance to 3.0% of current balance, and the
MILAN Credit Enhancement was increased from 8.0% to 12.8%,
the model output indicates that the Class A2 notes would still achieve
Aaa assuming that all other factors remained equal.
On 18 April 2016 the following amendments have been made to the Homes
Master Issuer program:
- Interim seller share calculations will take place whenever the
funding acquires a portion of the seller share or vice versa, and
whenever new assets are added to the trust. Previously, the
seller share calculations were only carried out on the calculation date.
- The minimum seller share is calculated with reference to the
excess of the borrowers' deposits with the seller over the Financial Services
Compensation Scheme limit.
- Loans where the borrower has opted to draw down a pre-agreed
further advance which increases the outstanding balance of the loan above
GBP750,000 will be repurchased.
- Class Z is issued as a variable funding note and will no longer
be linked to a particular series but will be issued at program level.
- After Holmes Master Issuer 2013-1 series are fully repaid,
the portion of the funding swap that hedges the mismatch between the note
Libor and the loans linked to Santander UK Plc standard variable rate
("SVR") will switch from tracking a basket of UK lender SVRs to directly
tracking Santander UK SVR.
- Maximum maturity of the loans and the notes can now be changed,
provided that the maturity of any loan is no later than two years prior
to the legal final maturity of any note.
Moody's Investors Service has determined that these amendments do not,
in and of themselves and at this time, result in a downgrade or
withdrawal of the current ratings of the notes issued by Holmes Master
Issuer Plc.
Factors that would lead to a downgrade of the ratings:
Factors that would lead to a downgrade of the ratings include deterioration
in the credit quality of the counterparties, particularly the swap
counterparty and economic conditions being worse than forecast resulting
in worse-than-expected performance of the underlying collateral.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in January 2015.
Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
The analysis undertaken by Moody's at the initial assignment of a rating
for RMBS securities may focus on aspects that become less relevant or
typically remain unchanged during the surveillance stage. Please
see Moody's Approach to Rating RMBS Using the MILAN Framework for further
information on Moody's analysis at the initial rating assignment and the
on-going surveillance in RMBS.
Loss and Cash Flow Analysis:
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.
Stress Scenarios:
As such, Moody's analysis encompasses the assessment of stressed
scenarios.
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.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1028993.
Moody's describes its loss and cash flow analysis in the section
"Ratings Rationale" of this press release
Moody's describes the stress scenarios it has considered for this
rating action in the section "Ratings Rationale" of this press
release.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
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.
Maria Divid
Asst Vice President - 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
MD - Structured Finance
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 assigns definitive credit ratings to RMBS notes issued by Holmes Master Issuer Series 2016-1
