New York, January 13, 2021 -- Moody's Investors Service, ("Moody's") has
assigned provisional ratings to six classes of notes issued by Station
Place Securitization Trust 2021-WL1. The securities are
backed by a revolving pool of newly originated firstlien, fixed
rate and adjustable rate, residential mortgage loans which are eligible
for purchase by Fannie Mae, Freddie Mac and Ginnie Mae ("the agencies").
The pool may include FHA streamline mortgage loans or VA Interest Rate
Reduction Refinancing Loan (IRRR) which may have limited valuation and
documentation, by no more than 15% of the balance.
The revolving pool has a total size of $400,000,000.
The complete rating action are as follows.
Issuer: Station Place Securitization Trust 2021-WL1
Cl. A, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa2 (sf)
Cl. C, Assigned (P)A2 (sf)
Cl. D, Assigned (P)Baa2 (sf)
Cl. E, Assigned (P)Baa3 (sf)
Cl. F, Assigned (P)Baa3 (sf)
RATINGS RATIONALE
The Station Place Securitization Trust 2021-WL1 transaction is
backed by a revolving warehouse facility sponsored by Jefferies Funding
LLC ("Jefferies Funding"). The facility's collateral will be newly-originated,
first-lien, fixed rate and adjustable rate, residential
mortgage loans eligible for purchase by the agencies. The transaction
is based on a "back to back" repo structure. The underlying repurchase
agreements are between each of the underlying sellers, and Jefferies
Funding, as buyer. The securitization's repurchase agreement
is between Jefferies Funding, as repo seller, and Station
Place Securitization Trust 2021-WL1 as buyer. Jefferies
Group LLC ("Jefferies Group", rated Baa3) guarantees Jefferies Funding's
payment obligations under the securitization's repurchase agreement during
the revolving period, which amounts will in turn be used to pay
the notes in full in two years.
We base our Aaa expected losses of 30.66% and base case
expected losses of 4.48% on a scenario in which Jefferies
Funding and the repo guarantor do not pay the aggregate repurchase price
to pay off the notes at the end of the facility's two-year revolving
term, and the repayment of the notes will depend on the credit performance
of the remaining static pool of mortgage loans. To assess the credit
quality of the static pool, we created a hypothetical adverse pool
based on the facility's eligibility criteria, which includes no
more than 25% (by unpaid balance) adjustable-rate mortgage
(ARM) loans. We analyzed the pool using our US MILAN model and
made additional pool level adjustments to account for risks related to
(i) a weak representation and warranty enforcement framework (ii) a high
level of compliance findings related to the TILA-RESPA Integrated
Disclosure (TRID) Rule in third-party diligence reports from prior
warehouse securitizations, which have raised concerns about potential
losses owing to TRID for the loans in this transaction and (iii) risks
related to homeowners association (HOA) properties in super lien states.
The ratings on the notes are the higher of (i) the repo guarantor Jefferies
Group LLC's financial strength rating (Baa3) and (ii) the rating of the
notes based on the credit quality of the mortgage loans backing the notes
(i.e., absent consideration of the repo guarantor).
If the repo guarantor does not satisfy its obligations under the guaranty,
then the ratings on the notes will only reflect the credit quality of
the mortgage loans backing the notes.
Collateral Description:
The mortgage loans will be newly originated, first-lien,
fixed-rate and adjustable rate mortgage loans that also comply
with the eligibility criteria set forth in the master repurchase agreement.
The aggregate principal balance of the purchased loans at closing will
be $400,000,000. Per the transaction documents,
the mortgage pool will have a minimum weighted average FICO of 715 and
a maximum weighted average LTV of 85%.
The ultimate composition of the pool of mortgage loans remaining in the
facility at the end of the two-year term upon default of Jefferies
Funding is unknown. We modeled this risk through evaluating the
credit risk of an adverse pool constructed using the eligibility criteria.
In generating the adverse pool: 1) We assumed the worst numerical
value from the criteria range for each loan characteristic. For
example, the credit score of the loans is not less than 620 and
the weighted average credit score of the purchased mortgage loans is not
less than 715; the maximum debt-to-income ratio is
55% in the adverse pool (per eligibility criteria); 2) We
assumed risk layering for the loans in the pool within the eligibility
criteria. For example, loans with the highest LTV also had
the lowest FICO to the extent permitted by the eligibility criteria;
3) We took into account the specified restrictions in the eligibility
criteria such as the weighted average LTV and FICO; 4) Since these
loans are eligible for purchase by the agencies, we also took into
account the specified restrictions in the underwriting criteria.
For example, no more than 97% LTV for fixed rate purchased
loans and 95% for adjustable rate purchase loans; and 5) we
also took into account any restrictions on loans originated/serviced by
particular sellers. For example, Movement Mortgage,
LLC cannot service more than 10% of the pool (by balance).
The mortgage loans may be originated by any of the following underlying
sellers - Homebridge Financial Services, Inc.,
loanDepot.com, LLC, Nationstar Mortgage, LLC,
Plaza Home Mortgage, Inc., Movement Mortgage,
LLC, PMT Lending, LLC, Provident Asset Management,
Provident Funding Associates, L.P., Quicken
Loans, LLC and United Shore Financial Services, LLC.
All underlying sellers are approved sellers and servicers by the agencies.
We reviewed the seller approval and monitoring process along with risk
management practices of Jefferies. We also considered Jefferies
assessment (including their perceived risk) of the underlying sellers
in our analysis.
The underlying sellers will service the loans and U.S. Bank
National Association will be the standby servicer. At the transaction
closing date, the underlying servicers will sign an acknowledgment,
which will provide that they are servicing the purchased loans for the
joint benefit of Station Place Securitization Trust 2021-WL1 and
the indenture trustee.
Transaction Structure:
Our analysis of the securitization structure includes reviewing bankruptcy
remoteness, assessing the ability of the indenture trustee to take
possession of the collateral in an event of default, conformity
of the collateral with the eligibility criteria as well as allocation
of funds to the notes.
The transaction is structured with back-to-back repo agreements
whereby Jefferies Funding as the buyer will acquire the eligible mortgage
loans pursuant to underlying repurchase agreements with the underlying
sellers. The underlying repurchase agreements permit Jefferies
Funding to re-hypothecate the eligible mortgage loans and within
the underlying repurchase agreements, the underlying sellers have
acknowledged Jefferies Funding's right to enter into financing transactions
such as those contemplated by the Station Place master repurchase agreement
and the indenture. Under the master repurchase agreement,
Jefferies Funding, the repo seller, will repurchase the purchased
mortgage loans on the repurchase date. The underlying sellers will
then repurchase such mortgage loans from Jefferies Funding at their respective
repurchase price.
The U.S. Bankruptcy Code provides repurchase agreements,
security contracts and master netting agreements a "safe harbor" from
the Bankruptcy Code automatic stay. Due to this safe harbor,
in the event of a bankruptcy of Jefferies Funding, the issuer will
be exempt from the automatic stay and thus, the issuer will be able
to exercise remedies under the master repurchase agreement, which
includes seizing the collateral.
During the revolving period, the repo seller's obligations will
include making timely payments of interest accrued on the notes as well
as the aggregate monthly fees. Failure to make such payments will
constitute a repo trigger event whereby the indenture trustee will seize
the collateral and terminate the repo agreement. It is expected
that the notes will not receive payments of principal until the expected
maturity date or after the occurrence and continuance of an event of default
under the indenture unless the repo seller makes an optional prepayment.
In an event of default, principal will be distributed sequentially
amongst the classes. Realized losses will be allocated in a reverse
sequential order.
In addition, since the pool may consist of both fixed rate and adjustable
rate mortgages, the transaction may be exposed to potential risk
from interest rate mismatch. To account for the mismatch,
we assumed a stressed LIBOR curve by increasing the one-month LIBOR
rate incrementally for a certain period until it reaches the maximum allowable
interest rate as described in the transaction documents.
Ongoing Due Diligence
During the revolving period, Clayton Services LLC will conduct ongoing
due diligence on 100 randomly selected loans. The first review
will be performed 30 days following the closing date while the periodic
review will be conducted every 180 days after the closing date.
The scope of the review will include credit underwriting, regulatory
compliance, valuation and data integrity.
Because Moody's analysis is based on a scenario in which the facility
terms out, due diligence reviews provide some control on the credit
quality of the collateral. The due diligence framework in this
transaction combined with the collateral eligibility controls help mitigate
the risks of adverse selection in this transaction.
While the due diligence review will provide some validation on the quality
of the loans, it may not be fully representative of the collateral
quality of the facility at all times. This is mainly due to the
frequency of the due diligence review, the revolving nature of the
collateral pool, and that the review will be conducted on a sample
basis. Also, by the time the due diligence review is completed,
some of the sampled loans may no longer be in the pool.
Representation and Warranties
For a mortgage loan to qualify as an eligible mortgage loan, the
loan must meet representations and warranties described in the repurchase
agreement. The substance of the representations and warranties
are consistent with those in our published criteria for representations
and warranties for U.S. RMBS transactions. After
a repo event of default, which includes the repo seller or buyer's
failure to purchase or repurchase mortgage loans from the facility,
the repo seller or buyer's failure to perform its obligations or comply
with stipulations in the master repurchase agreement, bankruptcy
or insolvency of the buyer or the repo seller, any breach of covenant
or agreement that is not cured within the required period of time,
as well as the repo seller's failure to pay price differential when due
and payable pursuant to the master repurchase agreement, a delinquent
loan reviewer will conduct a review of loans that are more than 120 days
delinquent to identify any breaches of the representations and warranties
provided by the underlying sellers. Loans that breach the representations
and warranties will be put back to the repo seller for repurchase.
While the transaction has the above described representation and warranties
enforcement mechanism, in the amortization period, after an
event of default where the repo seller did not pay the notes in full,
it is unlikely that the repo seller will repurchase the loans.
In addition, the noteholders (holding 100% of the aggregate
principal amount of all notes) may waive the requirement to appoint such
delinquent loan reviewer.
Elevated social risks associated with the COVID-19
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 residential mortgage loans
from the current weak US 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.
We have not made any adjustments related to coronavirus for this transaction
because (i) loans that are subject to payment forbearance or a trial modification
are ineligible to enter the facility, and the repo seller must repurchase
loans in the facility that become subject to forbearance, (ii) delinquent
loans are ineligible to enter the facility, and (iii) loans are
unlikely to be modified while in the facility due to the seasoning constraint
specified in the eligibility criteria. The repo seller will be
required to repurchase any loans that do not meet the "eligible loan"
criteria.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Levels of credit protection that are higher than necessary to protect
investors against current expectations of loss could drive the ratings
up. Losses could decline from Moody's original expectations as
a result of a lower number of obligor defaults or appreciation in the
value of the mortgaged property securing an obligor's promise of payment.
Transaction performance also depends greatly on the US macro economy and
the state of the housing market.
Down
Levels of credit protection that are insufficient to protect investors
against current expectations of loss could drive the ratings down.
Losses could rise above our original expectations as a result of a weaker
collateral composition than that in the adverse pool, financial
distress of any of the counterparties. Transaction performance
also depends greatly on the US macro economy and housing market.
Methodology
The methodologies used in these ratings were "Moody's Approach to Rating
US RMBS Using the MILAN Framework" published in April 2020 and available
at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1201303
and "Rating Transactions Based on the Credit Substitution Approach:
Letter of Credit-backed, Insured and Guaranteed Debts" published
in May 2017 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1068154.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
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_1260495.
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK 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.
Vincent Lai
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Sang Shin
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
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