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Rating Action:

Moody's assigns definitive ratings to Lanark Master Issuer plc Series 2014-2

11 Dec 2014

London, 11 December 2014 -- Moody's Investors Service, ("Moody's") has assigned definitive credit ratings to the following classes of notes issued by Lanark Master Issuer plc Series 2014-2:

...EUR 550 M Class 1A Floating-Rate Notes due 2054, Definitive Rating Assigned Aaa (sf)

...GBP 275 M Class 2A Floating-Rate Notes due 2054, Definitive Rating Assigned Aaa (sf)

Moody's has not rated the GBP 480.5M Class Z VFN due 2054.

Moody's also affirms the existing ratings of notes issued by Lanark Master Issuer plc.

RATINGS RATIONALE

The notes are backed by a pool of UK Prime residential mortgage loans originated by Clydesdale Bank plc (Baa2/P-2) and Yorkshire Bank Home Loans Limited (Not Rated, "YBHL"), a wholly owned subsidiary of Clydesdale Bank plc. This represents the sixth rated issuance out of the Lanark Master Trust. At closing the Trust Property for this transaction consists of approximately GBP 4.8 billion of loans. The reserve fund is funded to 1.24% of the total Funding Notes outstanding at closing and the total credit enhancement for the Class A notes is 14.7%.

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 9.0%.

A unique structural feature relates to the 32.4% of offset mortgage loans in the pool, whereby the amount of interest charged on the loans is reduced in proportion to the amount of savings held in a linked account at Clydesdale Bank plc. The transaction structure includes a mechanism for Clydesdale Bank plc to compensate the issuer for the reduction in interest receipts.

The Class 1A notes are hedged 50% by BNP Paribas (A1/P-1) and 50% by National Australia Bank Limited ("NAB", Aa2/P-1). The transfer triggers are at the loss of A3 and Baa1 respectively meaning there would still be a Aaa probability of becoming unhedged even should the swap counterparty be downgraded by one or two notches respectively.

Portfolio expected loss of 1%: This is in line with the UK Prime sector and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the collateral performance of Clydesdale Bank plc and YBHL originated loans to date, as provided by the originator and observed in the Lanark 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 CE of 9%: This is in line with the UK Prime sector average and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers (i) the collateral performance of Clydesdale Bank plc and YBHL originated loans to date as described above; (ii) the weighted average current loan-to-value of 64.9% which is lower than the average seen in the sector; (iii) an AVM valuation was provided for 9.2% of the portfolio; and (iv) potential drift in asset quality through new loans being added as described above.

The rating on the notes addresses 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% of current balance to 3% of current balance, and the MILAN Credit Enhancement was increased from 9% to 14.4%, the model output indicates that the class A 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 rating(s) include (a) increased counterparty risk leading to potential operational risk of (i) servicing or cash management interruptions and (ii) the risk of increased swap linkage due to a downgrade of a currency swap counterparty rating, and (b) economic conditions being worse than forecast resulting in higher arrears and losses.

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.

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 described in the previous paragraph, 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.

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 in this transaction for Lanark Master Issuer plc Series 2014-2.

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 for Lanark Master Issuer plc Series 2012-1, Series 2012-2, Series 2013-1 and Series 2014-1.

Further information on the representations and warranties and enforcement mechanisms available to investors for Lanark Master Issuer plc Series 2014-2 is available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF389243.

Moody's describes its loss and cash flow analysis in the section "Rating Rationale" of this press release.

Moody's describes the stress scenarios it has considered for this rating action in the section "Rating 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 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.

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.

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.

Jonathan Livingstone
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
SUBSCRIBERS: 44 20 7772 5454

Michelangelo Margaria
VP - Sr Credit Officer/Manager
Structured Finance Group
Telephone:+39-02-9148-1100

Chen Xue
Associate Analyst
Structured Finance Group
Telephone:+44-207-772-1060

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 ratings to Lanark Master Issuer plc Series 2014-2
No Related Data.
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