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Announcement:

Moody's comments on Acenden's servicing operations

12 Apr 2011

London, 12 April 2011 -- Moody's Investors Service updates on Acenden Limited's (Acenden, not rated) servicer and cash manager in 28 Moody's rated outstanding RMBS transactions, since its last visit in July 2009. Over the past two years, Acenden has made significant progress in implementing an effective separation of the company from the rest of the Lehman group. Moody's currently views positively the changes introduced in the company's servicing and cash management operations, which should help to support performance of the mortgage pools serviced by Acenden.

As part of its surveillance process of residential mortgage-backed securities (RMBS) transactions, Moody's regularly meets with servicers to monitor their quality and discuss any changes to the servicing infrastructure since Moody's previous visit. On 25 February, Moody's met with Acenden, which is the primary servicer, special servicer and cash manager in 28 Moody's-rated outstanding RMBS transactions, for a total outstanding balance of GBP5.3 billion:

- 11 transactions of the Eurosail series;

- 3 transactions of the Marble Arch series;

- 5 transactions of the Preferred series;

- 8 transactions of the Southern Pacific series; and

- 1 transaction of the EMF series.

As cash manager, primary and special servicer for these transactions, Acenden's responsibilities include: (i) processing the payments received from the borrowers and providing customer administration services; (ii) administering borrowers who are in arrears with their payments; (iii) managing the repossession and sale process of the real estate property, which includes overseeing the third parties involved in these processes (e.g. solicitors, asset managers); (iv) offering loan modification and default management services; (v) manage cash receipts and disbursements and maintain all cash management ledgers in the transactions.

GENERAL INFORMATION

Acenden (previously known as Capstone) and its predecessors, have been providing loan administration services since 1996, as part of Lehman Brothers' mortgage operations in Europe. Currently Acenden employs approximately 430 people and services approximately 75,000 loans, corresponding to GBP6.3 billion of assets. Following the filing for bankruptcy of Lehman Brothers Holdings Inc. in September 2008, Acenden has continued to operate as servicer and cash manager in the UK market.

Storm Funding Limited (in administration as part of the Lehman estate) currently holds 77% of Acenden's ordinary shares, with Acenden's management holding the remaining 23%.

MOODY'S UPDATED OPINION ON ACENDEN'S SERVICING OPERATION

Moody's believes that Acenden has succeeded in implementing an effective separation of the company from the rest of the Lehman group, although a majority of the company's shares continue to be held by the Lehman estate. Currently, Acenden has achieved complete separation in terms of facilities, IT systems and infrastructure, legal and compliance. Uncertainties remain in relation to the likelihood and timing of the future divestment of the majority stake owned by the Lehman group.

Moody's views positively Acenden's new internal audit function which has been introduced since its last visit. The audit function reports directly to the board, which strengthens Acenden's internal control system. According to the new audit plan, every auditable entity within Acenden is to be reviewed at least once every three years. All major arrears cash processing, reconciliations, collections, cash bond administration and IT are deemed highest risk and are being audited at least once a year. This is accompanied by a new operational risk management framework which improves the risk control assessment, indicators and reporting.

Moody's notes that the staff turnover has remained fairly stable over the last six months, oscillating between 22% and 24%, although increasing from the 17% turnover rate as of the previous visit. In 2010 senior management has also partially changed, due to the replacement of the chief operating and chief finance officers. Acenden also recruited a permanent IT director and created and filled the new position of commercial director, in order to strengthen senior management roles in light of the necessary transition from captive to third-party servicer. As a result, Acenden currently benefits from very experienced senior management, with an average industry experience of above 19 years.

Acenden has so far benefited from a stable captive mortgage portfolio. Current low level of prepayments in the UK non-conforming sector have contributed to a slow down in the gradual amortisation of the portfolio. However, Acenden business model depends on its capability to act as a third party servicer on additional mortgage pools, which will progressively compensate for its amortising captive portfolios. Acenden has already taken some steps in this direction, by creating a dedicated commercial team within the organisation and by opening up an office in Ireland and acquiring the servicing of a small mortgage portfolio in Ireland. As part of this strategy, Acenden has been recently involved in a rebranding and marketing exercise and has also recently launched a new customer website including full payment capabilities.

SECURITISED PORTFOLIO PERFORMANCE

The collateral performance of the RMBS transactions serviced by Acenden has improved recently. Repossessions and 90d+ delinquencies have decreased over the past year in line with market trend. Loans delinquent by more than 90 days amount to approximately 18.6% of the current portfolio balance, vs. 17.3% for the UK non-conforming RMBS index, while outstanding repossessions are approximately 1.0% of the current portfolio balance, compared with 0.9% for the UK non-conforming RMBS index. The cumulative losses as a percentage of the original pool balance are approximately 2.5%, as opposed to 1.9% for the UK non-conforming RMBS index.

Moody's observes that some UK non-conforming RMBS transactions serviced by Acenden are performing worse than similarly seasoned deals, which it believes is primarily due to pool characteristics. However, Moody's views positively Acenden's servicing capabilities in maximising the pool performance given the intrinsic quality and characteristics of the underlying mortgages.

Moody's will continue to monitor closely the performance of Acenden's servicing and cash management roles as part of the surveillance of Moody's-rated transactions.

Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck. For further information, please visit our website directly or contact Moody's Client Service Desk (+44 20) 7772 5454. Additional information on the referenced Moody's rated RMBS transactions, including the latest Performance Overview, is available at www.moodys.com.

London
Giacomo Bonetti
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Barbara Rismondo
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 comments on Acenden's servicing operations
No Related Data.
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