GBP 1,480.4 million RMBS Notes rated, relating to a portfolio of UK prime mortgage loans
London, 30 March 2021 -- Moody's Investors Service ("Moody's") has assigned definitive credit ratings
to the following Notes issued by BRASS NO. 10 PLC:
....US$300M Class A1 Mortgage-Backed
Fixed Rate Notes due April 2069, Definitive Rating Assigned Aaa
(sf)
....GBP264M Class A2 Mortgage-Backed
Floating Rate Notes due April 2069, Definitive Rating Assigned Aaa
(sf)
....GBP1000M Class A3 Mortgage-Backed
Floating Rate Notes due April 2069, Definitive Rating Assigned Aaa
(sf)
Moody's has not assigned a rating to the subordinated GBP 243.9M
Class Z VFN Notes due April 2069.
RATINGS RATIONALE
The Notes are backed by a five-year revolving pool of prime UK
residential mortgage loans originated by Accord Mortgages Limited (NR),
a wholly owned subsidiary of Yorkshire Building Society ("YBS") (A3/P-2
(deposit ratings), A3 (senior unsecured), A1(cr) (counterparty
risk assessment)). This transaction represents the twelfth securitisation
transaction rated by Moody's from this originator.
The portfolio of assets amounts to approximately GBP 1,681.4
million as of 07 March 2021 pool cut-off date. At closing
the total credit enhancement for the Class A Notes is 14.5%
provided through subordination and an amortising Reserve Fund which will
be funded to 2.5% of the mortgage portfolio balance at closing.
The ratings are primarily based on the credit quality of the underlying
prime mortgage pool, the structural features of the transaction
and its legal integrity.
Moody's determined the portfolio lifetime expected loss of 1.1%
and MILAN credit enhancement ("MILAN CE") of 10.5% 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 1.1%: This is in line with
the UK prime RMBS sector and is based on Moody's assessment of the lifetime
loss expectation for the pool taking into account: (i) the collateral
performance of Accord Mortgages Limited originated loans to date,
as provided by the originator and observed in previously securitised portfolios;
(ii) the fact that the underwriting standards applied to the loans in
the pool are more prudent compared to that seen in legacy portfolios,
as most of the loans in the pool were originated in recent years under
a stricter regulatory environment; (iii) the current macroeconomic
environment in the UK and the impact of future interest rate rises on
the performance of the mortgage loans; (iv) a higher weighted average
(WA) un-indexed CLTV of around 74.7% compared to
the UK RMBS sector; (v) benchmarking with other UK prime transactions;
and (vi) the criteria for further advances, addition of new loans
and product switches.
MILAN CE of 10.5%: This is higher than the UK Prime
RMBS sector weighted average of around 9% and follows Moody's assessment
of the loan-by-loan information taking into account the
following key drivers: (i) a higher weighted average (WA) un-indexed
CLTV of 74.7% compared to the UK RMBS sector; (ii)
the fact that the underwriting standards applied to the loans in the pool
are more prudent compared to that seen in legacy portfolios, as
most of the loans in the pool were originated in recent years under a
stricter regulatory environment; (iii) potential drift in asset quality
through the addition of new assets, product switches and further
advances; and (iv) benchmarking with other comparable UK RMBS transactions.
The risk of a deteriorating pool quality through the addition of loans
is partly mitigated by the replenishment criteria which includes,
amongst others, that the weighted average current loan-to-value
of all the mortgage loans, including those to be purchased by the
issuer, does not exceed 80%, that the current balance
of the loans in the overall portfolio (including further advances) with
an OLTV of more than 85.0% will not exceed 40.0%
of the aggregate current balance of the combined portfolio, that
the current balance of the interest-only parts of the mortgages
in the portfolio does not exceed 10.0% of the current aggregate
balance of the overall portfolio and that the current balance of the loans
with borrowers who are self-employed in the portfolio does not
exceed 17.5% of the current aggregate balance of the overall
portfolio. Further, no new loans can be added to the pool
if there is a PDL for Class Z VFN higher than 1.0% of the
aggregate principal amount outstanding of all notes or if loans more than
3 months in arrears exceed 3.0%.
Operational Risk Analysis: YBS is the servicer and cash manager.
There is a backup servicer facilitator in place at closing, and
there are triggers in place to appoint back up servicer and cash manager
on a best efforts basis should the counterparty risk assessment of YBS
fall below Baa3(cr). To help ensure continuity of payments both
the terms and conditions of the Notes and the swap documents require the
cash flows to be estimated from the three most recent servicer reports
should the current servicer report not be available. Further sources
of liquidity are: (i) the principal to pay interest mechanism for
the Class A Notes; (ii) the reserve fund; and (iii) the liquidity
reserve fund that will be established if the seller is downgraded below
Baa2. Given its senior position in the revenue waterfall the reserve
fund should be available as a source of liquidity in all but the most
extreme loss scenarios.
Interest Rate Risk Analysis: YBS is the swap counterparty in the
transaction. An interest rate swap provides a hedge for the fixed
rate period of the mortgages in the transaction.
Currency Risk Analysis: The USD denominated A1 Notes will benefit
from a balance guaranteed cross-currency swap provided by BNP Paribas
(Aa3/P-1 (senior unsecured and deposit ratings), Aa3(cr)
/P-1(cr) (counterparty risk ratings)). A collateral trigger
is set at a loss of A3(cr) rating, and a counterparty replacement
trigger is set at a loss of Baa1(cr) rating.
CURRENT ECONOMIC UNCERTAINTY:
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond
the end of the year. While persistent virus fears remain the main
risk for a recovery in demand, the economy will recover faster if
vaccines and further fiscal and monetary policy responses bring forward
a normalization of activity. As a result, there is a heightened
degree of uncertainty around our forecasts. Our analysis has considered
the effect on the performance of consumer assets from a gradual and unbalanced
recovery in the UK economic activity.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in December 2020 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1248130.
Alternatively, 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 would lead to a downgrade of the ratings include: (i)
increased counterparty risk leading to potential operational risk of:
(a) servicing or cash management interruptions; and (b) the risk
of increased swap linkage due to a downgrade of a currency swap counterparty
ratings; 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 in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1272207.
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, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Duy-Anh Bui
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
