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I AGREE
30 Mar 2010
Approximately EUR 100 million of debt securities affected
London, 30 March 2010 -- Moody's Investors Service announced today that it has confirmed the ratings
of the Class C and D notes issued by Fastnet Securities 2 plc (Fastnet
2). The Class C and D notes were placed under review for possible
downgrade on 22 July 2009 given the pool performance deterioration and
the weakened macro-economic environment in Ireland.
Moody's has been informed that on the 30th of March 2010 the originator/servicer
(Irish Life and Permanent, A2/P1) has granted a subordinated loan
to the issuer, Fastnet 2, for an amount of EUR37.75m.
The subordinated loan was used to fund an increase in the cash reserve
from EUR32.25m to EUR70m. The required cash reserve amount
was initially 1.5% of the rated notes, which corresponds
to 2.1% of the current note balance. The increased
cash reserve now represents 4.6% of current pool balance.
The upsized reserve fund remains non-amortizing for the life of
the deal.
During the rating review, Moody's has increased its expected
loss assumption for Fastnet 2. Today's rating confirmation concludes
the review and it is mainly driven by this increase in the reserve fund.
POOL COMPOSITION AND PORTFOLIO PERFORMANCE
Fastnet 2 closed in June 2006. The transaction is backed by a portfolio
of first-ranking mortgage loans secured on residential properties
located in Ireland, for an overall balance of EUR 2.1 billion
at closing. The mortgage loans have been originated by Irish Life
& Permanent. The pool includes a relatively substantial share
of loans with non-indexed loan-to-value (LTV) over
80%, currently representing 37% of the pool.
The weighted average non-indexed LTV is currently 67.3%
compared to 71.9% at closing. The portfolio has a
weighted average seasoning exceeding 60 months and an indexed weighted
average LTV of 74.0%. Irish house prices have declined
more than 30% from their peak, resulting in about 11%
of the outstanding portfolio having an indexed LTV currently exceeding
100%.
Fastnet 2 is performing outside of Moody's expectations as of closing.
The 90d+ delinquent loans have increased from 3.55%
of the outstanding balance as of July 2009 to 4.08% as of
February 2010. Despite the deterioration in total delinquencies,
the transaction has experienced zero losses and only marginal repossessions
as of the last payment date. Cumulative repossessions represent
only 0.09% of the current pool balance. The low level
of repossessions to-date is associated to the lengthy foreclosure
process in Ireland as well as to the moratorium on legal proceedings introduced
in February 2009 by the Irish government. In the February 2010
payment date, 360 days + arrears, used as a proxy for
defaults, rose to 1.4% of current pool balance,
up from 0.85% in July 2009.
REVISED LIFETIME LOSSES AND MILAN Aaa CE
Moody's has reassessed its lifetime loss expectation for Fastnet 2 to
account for the collateral performance to date as well as the current
macroeconomic environment in Ireland. On the basis of the deterioration
in 90d+ arrears in the transaction, we have updated the portfolio
expected loss assumption to 2.0% of original balance,
up from 0.97% at closing.
As part of its analysis, Moody's has also assessed loan-by-loan
information for the outstanding portfolio to determine the credit support
consistent with target rating levels and the volatility of the distribution
of future losses. For this review, "Moody's MILAN
Methodology for Rating Irish RMBS" was used. As a result,
Moody's has maintained its MILAN Aaa credit enhancement (MILAN Aaa
CE) assumptions of 10.3% for Fastnet 2. The loss
expectation and the Milan Aaa CE are the two key parameters used by Moody's
to calibrate its loss distribution curve, which is one of the core
inputs in the cash-flow model it uses to rate RMBS transactions.
Current credit enhancement under Aaa-rated Class A notes (including
subordination and increased reserve fund) is 11.5%.
Credit enhancement for the notes is also provided by the swap margin,
which is expected to rise from 115 bps currently to 130 bps as all fixed
rate loans switch to floating rate. The fixed rate loans are all
expected to revert to floating rate loans by 2018 at the latest,
with only 3% of the pool comprising fixed rate loans mortgage by
2015.
DEAL STRUCTURE
Reserve Fund: The reserve fund is non-amortizing and is fully
funded to EUR70m since the 30th of March 2010, representing 4.6%
of current pool balance.
Revolving period until June 2012: The transaction is exposed to
substitution risk until June 2012 as the Issuer has the option to substitute
loans and fund further advances to current loans, under certain
terms and conditions. However, the substitution has stopped
in November 2008 when principal receipts were insufficient to maintain
the target balance of the notes, which is defined as the notes balance
derived from a 10% CPR amortization schedule. The notes
balance was EUR 1,499.3bn in February 2010 compared to a
target notes balance of EUR 1,559.8bn. The annualized
CPR rate experienced by the pool has dropped significantly since 2008
to 1.1% in February, and Moody's believe that
it is very unlikely that the redemption would be sufficient over the next
2 years to allow for any new loan substitution.
Hedging agreements: The transaction benefits from a floating rate
and fixed interest rate swaps provided by Irish Life & Permanent (A2/P-1).
Irish Life & Permanent was required to take remedial action following
its downgrade to A2 which occurred in July 2009. Irish Life &
Permanent has put in place a credit support annex in line with Moody's
framework for de-linking hedge counterparty risks.
AMORTISATION OF THE NOTES
The senior notes, mezzanine and subordinated notes have been amortizing
pro-rata since closing. The principal funds applied in redeeming
the senior notes were first allocated to the A1 notes, which have
now fully redeemed. Moody's notes that the pro-rata
amortization may expose the class A2 notes to additional risks and to
higher rating volatility compared to sequential amortisation structures
where the credit enhancement available to senior notes increases as the
deal amortises. In Fastnet 2 the note amortisation switches to
sequential pay if certain conditions are not met such as : 1) the
outstanding balance of the loans more than 90d+ in arrears exceeds
4% of current pool balance, 2) there is an unpaid principal
deficiency remaining after the revenue fund allocation or 3) the balance
of the reserve fund is not at target level. The arrears trigger
test was breached at the payment date in February 2010, when 90d+
arrears reached 4.08% of current pool balance. However,
Moody's believes that this trigger could cure in future if arrears
stabilise while the balance of loans in repossessions increases,
considering that repossessions are excluded from the 90d+ arrears
bucket. In its cash flow analysis, Moody's took into
consideration the lengthy repossession process, the delay in the
realisation of losses and the potential switch to pro-rata amortisation
of the notes.
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes. Moody's ratings address only the credit
risks associated with the transactions. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors.
The principal methodologies used in monitoring this transaction is "Moody's
MILAN Methodology for Rating Irish RMBS" published in April 2009,
and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction"
published in December 2008 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Please also refer to the "Irish RMBS Q2 2009 Indices",
which is available on www.moodys.com in the Industry / Sector
Research sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's web site. In addition, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our web site, at www.moodys.com/SFQuickCheck.
LIST OF DETAILED RATING ACTIONS
Fastnet Securities 2 PLC
EUR 44M Class C Notes, Confirmed at A2; previously on Jul 22,
2009 A2 Placed Under Review for Possible Downgrade
EUR 56M Class D Notes, Confirmed at Baa2; previously on Jul
22, 2009 Baa2 Placed Under Review for Possible Downgrade
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
London
Carole Bernard
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's confirms the rating of two Irish RMBS notes issued by Fastnet 2 following increase in the reserve fund
No Related Data.
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