GBP [] million RMBS Notes rated, relating to a portfolio of UK Buy-to-Let mortgage loans
NOTE: On January 13, 2021, the press release was corrected as follows: In the ninth paragraph of the REGULATORY DISCLOSURES section, the hyperlink was changed to https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. Revised release follows.
London, 11 January 2021 -- Moody's Investors Service ("Moody's") has assigned provisional credit
ratings to the following Notes to be issued by Hops Hill No.1 plc:
....GBP []M Class A Mortgage Backed Floating
Rate Notes due [May 2054], Assigned (P)Aaa (sf)
....GBP []M Class B Mortgage Backed Floating
Rate Notes due [May 2054], Assigned (P)Aa1 (sf)
....GBP []M Class C Mortgage Backed Floating
Rate Notes due [May 2054], Assigned (P)Aa3 (sf)
....GBP []M Class D Mortgage Backed Floating
Rate Notes due [May 2054], Assigned (P)A2 (sf)
The GBP []M Class X Floating Rate Notes due [May 2054] and the
GBP []M Class Z Variable Funded Note due [May 2054] have not
been rated by Moody's.
The Notes are backed by a pool of UK buy-to-let ("BTL")
mortgage loans originated by Keystone Property Finance Limited.
The originator sold the beneficial title to UK Mortgages Corporate Funding
DAC. The securitised portfolio consists of 1,465 mortgage
loans with a current balance of GBP 316 million as of 30 November 2020.
However, it is envisaged that on the closing date part of the proceeds
of the Notes issuance will be deposited in a separate ledger, and
subsequently be used before the first note payment date in May 2021 (pre-funding
period) to finance the purchase by the issuer of additional loans.
In addition, all principal received during the pre-funding
period can be used to add new loans to the pool. Loans added to
the pool during the pre-funding period have to comply with the
pre-funding eligibility criteria.
RATINGS RATIONALE
The ratings of the Notes are based on an analysis of the characteristics
and credit quality of the underlying buy-to-let mortgage
pool, sector-wide and originator specific performance data,
protection provided by credit enhancement, the roles of external
counterparties and the structural features of the transaction.
MILAN CE for this pool is 16.0%, and the expected
loss is 2.5%.
The portfolio's expected loss is 2.5%, which is higher
than other UK BTL RMBS transactions, because of (1) the WA current
LTV of the pool of 71.4%, (2) the performance of comparable
originators, (3) the expected outlook for the UK economy in the
medium term and (4) benchmarking with similar UK BTL transactions.
MILAN CE for this pool is 16.0%, which is higher than
that other UK BTL RMBS transactions, because of (1) the WA current
LTV of the pool of 71.4%, (2) the fact that the top
20 borrowers constitute 9.8% of the pool, (3) the
fact that 94.4% of the pool are IO loans, (4) the
share of self-employed borrowers is 25.2%,
and that of legal entities (with full recourse to borrowers) is 52.5%,
(5) the presence of 21.6% of House in Multiple Occupation
(HMO) and Multi-Unit Block (MUB) loans in the pool and (6) the
benchmarking with similar UK BTL transactions.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer corporate assets
from the current weak UK economic activity and a gradual recovery for
the coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
At closing, the transaction benefits from a fully funded,
non-amortising general reserve fund that equals 2.0%
of the principal amount outstanding on the closing date of the collateralized
notes balance. The general reserve fund is made of: (i) an
amortising liquidity reserve fund equal to 1.5% of the principal
amount outstanding of the Class A and Class B Notes and (ii) a non-amortising
credit reserve equal to the difference of the general reserve fund and
liquidity reserve balance.
Operational Risk Analysis: Pepper (UK) Limited is the servicer in
the transaction whilst Citibank N.A., London Branch,
will be acting as the cash manager. To mitigate the operational
risk, Intertrust Management Limited (NR) will act as back-up
servicer facilitator. To ensure payment continuity over the transaction's
lifetime, the transaction documentation incorporates estimation
language whereby the cash manager can use the most recent servicer reports
available to determine the cash allocation in case no servicer report
is available. Finally, there is principal to pay interest
as an additional source of liquidity for the Classes A to D. Principal
can be used to pay interest on Class A without any conditions.
For class B, it can be used provided that either it is the most
senior class outstanding or that there is no PDL outstanding on that class.
For Class C and D notes, the only condition applying is that the
class of notes has to be the most senior outstanding.
Interest Rate Risk Analysis: 100% of the loans in the pool
are fixed-rate loans reverting to BBR or three months LIBOR.
The Notes are floating rate securities with reference to daily SONIA.
To mitigate the fixed-floating mismatch between fixed-rate
assets and floating liabilities, there will be a fixed-floating
interest rate swap provided by National Australia Bank Limited (Aa2(cr)/P-1(cr)).
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:
Significantly different actual losses compared with our expectations at
close due to either a change in economic conditions from our central scenario
forecast or idiosyncratic performance factors would lead to rating actions.
For instance, should economic conditions be worse than forecast,
the higher defaults and loss severities resulting from a greater unemployment,
worsening household affordability and a weaker housing market could result
in a downgrade of the ratings. Deleveraging of the capital structure
or conversely a deterioration in the Notes available credit enhancement
could result in an upgrade or a downgrade of the ratings, respectively.
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.
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
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
