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Rating Action:

Moody's assigns definitive ratings to notes issued by Optimum One S.A R.L

Global Credit Research - 04 Feb 2016

London, 04 February 2016 -- Moody's Investors Service has assigned a definitive long-term credit rating to Variable Funding Notes issued by Optimum One S.A R.L:

....GBP100M Variable Funding Notes, Assigned A2 (sf)

Moody's has not assigned a rating to the GBP17.6M Subordinated Notes.

This transaction is an asset backed securitisation by Optimum Credit Limited (not rated), with the portfolio backed by properties in England, Scotland and Wales with some of the borrowers being credit impaired. The portfolio consists of small second charge loans. The note is a variable funding note with a total commitment at closing of GBP 76 million, with a maximum total commitment of GBP 100 million.

RATINGS RATIONALE

The rating of the notes is based on an analysis of the characteristics of the underlying mortgage pool, sector wide and originator specific performance data, protection provided by credit enhancement, the roles of external counterparties including the back up servicer and cash manager and the structural integrity of the transaction.

Moody's determined the MILAN CE of 30.0% and the portfolio expected loss of 7.5% as input parameters for Moody's cash flow model.

Portfolio expected loss of 7.5%: this is higher than the UK Non Conforming RMBS sector average and was evaluated by assessing the originator's historical performance data, inclusion of second lien loans, commercial lending and bridging loans, and benchmarking with other UK RMBS transactions. It takes into account Moody's positive UK Non Conforming RMBS outlook and the improved UK economic environment.

MILAN CE of 30.0%: this is higher than the UK Non Conforming RMBS average and follows Moody's assessment of the loan-by-loan information taking into account the historical performance available and the following key drivers: (i) the presence of second lien loans, (ii) the revolving nature of the deal and the portfolio limits on LTV, arrears and loan purpose and (iii) the current portfolio characteristics including CLTV of 65.9%, and 2.7% of borrowers with a prior CCJ.

Operational Risk Analysis: A back up servicer (Capita Mortgage Services Limited, not rated), and an independent cash manager (The Royal Bank of Scotland plc, A3/P-2) have all been appointed at closing. Capita Mortgage Services Limited is the back up servicer and requires service the loans immediately on termination of the servicer's performance guarantor's obligations under the servicing deed or within 60 days of Optimum Credit Limited being in breach of financial covenants. Capita Mortgage Services Limited has mapped functions performed currently by Optimum Credit Limited to ensure that it would be able to continue performing those functions. To help ensure continuity of payments the deal contains estimation language whereby the cash flows will be using a simplified calculation. The reserve fund covers 1.4 months of liquidity at close assuming Libor of 5.7% and as it can only be used for interest and fees should be available as a source of liquidity in all but the most extreme loss scenarios. Additionally during the revolving period, principal to pay interest for the VFNs is a further source of liquidity.

Transaction structure: The transaction benefits from a non-amortising reserve fund funded at 1% of the variable funding notes (VFNs) balance with total credit enhancement, excluding excess spread, for the VFNs being 15%. Excess spread is around 4.25% at closing and following the end of the revolving period will be used to repay the principal of the VFNs.

Interest Rate Risk Analysis: At closing, 71.1% of the loans are floating rate. From the fix portion a 44% will not be hedge but the fixed period will finish within two years. The remaining fixed portion will be hedge with a fixed floating swap provided by The Royal Bank of Scotland. As there are no swaps for the floating portion or for a portion of the fixed rate loans of the pool, Moody's has modeled the spread taking into account the requirements for the weighted average margin on the assets (including all costs) should be 3%.

Stress Scenarios:

At the time the rating was assigned, the model output indicated that the VFN would have only been rated one notch lower at A3 if the MILAN CE was increased to 36% from 30% and the expected loss was increased to 9.4% from 7.5% assuming all other factors were constant. 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.

The ratings addresses the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the Notes by the legal final maturity. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The principal methodology used in this rating 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 an RMBS security 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 RATING:

Upward pressure on the ratings could result from better-than-expected performance of the underlying assets.

Downward pressure on the ratings could result from significantly different loss assumptions compared with our expectations at close due to either a change in general economic and real estate market conditions from our central scenario forecast or idiosyncratic performance factors would lead to rating downgrades. Additionally a deterioration in counterparty creditworthiness could cause a downgrade of the rating.

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 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.

Rodrigo Conde
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

Michelangelo Margaria
Senior Vice President/Manager
Structured Finance Group
Telephone:+39-02-9148-1100

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 notes issued by Optimum One S.A R.L
No Related Data.
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