GBP 264.4million RMBS Notes rated, relating to a portfolio of the UK buy-to-let mortgage loans
London, 21 June 2019 -- Moody's Investors Service ("Moody's") has assigned definitive ratings
to Notes issued by Mortimer BTL 2019-1 PLC:
....GBP 215.120M Class A Mortgage Backed
Floating Rate Notes due June 2051, Definitive Rating Assigned Aaa
(sf)
....GBP 14.255M Class B Mortgage Backed
Floating Rate Notes due June 2051, Definitive Rating Assigned Aa1
(sf)
....GBP 12.959M Class C Mortgage Backed
Floating Rate Notes due June 2051, Definitive Rating Assigned A1
(sf)
....GBP 9.071M Class D Mortgage Backed
Floating Rate Notes due June 2051, Definitive Rating Assigned Baa2
(sf)
....GBP 7.776M Class E Mortgage Backed
Notes due June 2051, Definitive Rating Assigned Caa1 (sf)
....GBP 5.184M Class X Floating Rate
Notes due June 2051, Definitive Rating Assigned B2 (sf)
Moody's has not assigned a rating to the GBP 5.184M Class Z Notes
due June 2051.
RATINGS RATIONALE
The Notes are backed by a pool of prime UK buy-to-let ("BTL")
mortgage loans originated by LendInvest BTL Limited ("LendInvest",
NR). This represents the first rated RMBS issuance from LendInvest.
The portfolio of assets amount to approximately GBP 259.2million
as of 10 May 2019 pool cut-off date. The Reserve Fund will
be funded to 2.00% of the balance of Class A to E Notes
at closing and the total credit enhancement (without giving benefit to
excess spread) for the Class A Notes will be 19.00%.
The ratings are primarily based on the credit quality of the portfolio,
the structural features of the transaction and its legal integrity.
According to Moody's, the transaction benefits from various credit
strengths such as a static structure and a relatively low weighted-average
loan-to-value ("LTV"). However,
Moody's notes that the transaction features some credit weaknesses such
as an unrated originator with a short history also acting as servicer
and the absence of a balance guaranteed basis swap. Various mitigants
have been included in the transaction structure such as an experienced
contractual servicer, Pepper (UK) Limited (NR), and a back-up
servicer facilitator which is obliged to appoint a replacement servicer
if certain triggers are breached.
Moody's determined the portfolio lifetime expected loss of 2.50%
and 16.00% MILAN Credit Enhancement ("MILAN CE") related
to borrower receivables. The expected loss captures our expectations
of performance considering the current economic outlook, while the
MILAN CE captures the loss we expect the portfolio to suffer in the event
of a severe recession scenario. Expected defaults and MILAN CE
are parameters used by Moody's to calibrate its lognormal portfolio loss
distribution curve and to associate a probability with each potential
future loss scenario in the ABSROM cash flow model to rate RMBS.
Portfolio expected loss of 2.50%: This is higher than
the UK Prime RMBS sector average and is based on Moody's assessment of
the lifetime loss expectation for the pool taking into account the originator's
limited historical performance data for buy-to-let loans
and benchmarking with other UK BTL prime RMBS transactions. It
also takes into account UK BTL RMBS outlook and the UK economic environment.
MILAN CE of 16.00%: This is higher than the UK Prime
RMBS sector average and follows Moody's assessment of the loan-by-loan
information taking into account following key drivers: (i) the fact
that the historical performance data is limited; (ii) the weighted
average CLTV of 71.70%; (iii) the very low seasoning
of 0.5 years; (iv) the proportion of interest-only
loans is 100.0%; and (v) the proportion of buy-to-let
loans 100.0%;
All the mortgages in the pool carry a fixed rate. The transaction
benefits from a swap agreement to mitigate the fixed-floating mismatch
between the initial fixed rate paid by the mortgages and the floating
rate paid under the Notes. Over time, all the loans in the
portfolio will reset from fixed rate to a floating rate linked to three
months LIBOR. As is the case in many UK RMBS transactions,
this basis risk mismatch between the floating rate on the underlying loans
and the floating rate on the notes will be unhedged. Moody's
has applied a stress to account for the basis risk, in line with
the stresses applied to the various types of unhedged basis risk seen
in UK RMBS.
Principal Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in March 2019.
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.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may cause an upgrade of the ratings of the Notes include
significantly better than expected performance of the pool together with
an increase in credit enhancement of the Notes.
Factors that would lead to a downgrade of the ratings include: (i)
increased counterparty risk leading to potential operational risk of servicing
or cash management interruptions; and (ii) economic conditions being
worse than forecast resulting in higher arrears and losses.
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.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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.
Gabriele Gramazio
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
Client Service: 44 20 7772 5454
Barbara Rismondo
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