London, 16 March 2018 -- Moody's Investors Service ("Moody's") has assigned definitive credit ratings
to the following Notes issued by Holmes Master Issuer plc Series 2018-1:
....USD 200M Class A1 Floating Rate Notes
due 2019, Definitive Rating Assigned P-1 (sf)
....USD 750M Class A2 Floating Rate Notes
due 2054, Definitive Rating Assigned Aaa (sf)
....GBP 300M Class A3 Floating Rate Notes
due 2054, Definitive Rating Assigned Aaa (sf)
Moody's assigned provisional ratings to these notes on 7 March 2018.
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/Aa2(cr)/P-1(cr)).
This represents the twenty-sixth issue out of the Holmes Master
Trust structure. As of 31 December 2017, the trust property
for this transaction consisted of approximately GBP 4.5 billion
of loans. The reserve fund is funded to 3.72% of
the total notes outstanding at closing and the credit enhancement provided
by subordinated Class Z notes (not rated by Moody's and no new notes
of this class were issued at this time) to the Class A notes is 14.42%.
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 9.3% 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 60.2% 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 Class A1 Notes addresses the probability
of default by the legal final maturity. The long term ratings on
the Class A2 and Class A3 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 and Class A3 Notes would
still achieve Aaa (sf) assuming that all other factors remained equal.
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 September 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The analysis undertaken by Moody's at the initial assignment of ratings
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 cash flow model to 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_1116059.
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.
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 rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Lisa Macedo
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
