London, 27 July 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded, confirmed and affirmed ratings in 14 UK RMBS transactions.
Moody's downgraded the ratings of 2 notes in Polaris 2019-1
plc ("Polaris 2019-1"), 2 notes in Chester A
PLC ("Chester A"), 1 note in Stratton Mortgage Funding
plc ("Stratton Mortgage") and 1 note in RMAC No.2 plc
("RMAC No.2") plc. The rating downgrades reflect
the increased likelihood of deteriorating performance of mortgage loans
in the transactions, due to the economic disruption following the
coronavirus outbreak. Moody's affirmed the ratings of 53 notes
and confirmed the ratings of 28 notes that had sufficient credit enhancement
to maintain their current ratings.
Today's rating action concludes the review of 34 notes placed on review
for downgrade on 7 May 2020 following an analysis of potential deteriorating
performance of the mortgage loans backing the notes due to economic disruption
following the coronavirus outbreak (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_424076).
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL429023
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL429023
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Key Rationale for Action
The rating downgrades in Polaris 2019-1, Chester A,
Stratton Mortgage and RMAC No.2 are prompted by Moody's updated
loss expectation in the transactions, reflecting the anticipated
worse than expected collateral performance due to the coronavirus outbreak.
The rating confirmations and affirmations announced in this press release
reflect sufficient credit enhancement and liquidity to maintain the ratings
of the affected notes.
Moody's reassessed its key collateral assumptions, namely the portfolio
Expected Loss (EL) and MILAN CE assumptions for all fourteen transactions
affected by today's rating action.
The performance of Chester A and Stratton Mortgage has deteriorated since
the start of the coronavirus outbreak. Arrears of over 90 days
past due as a percentage of current balance in those portfolios has increased,
and now stands at 10.7%, and 13.6% respectively.
Moreover, mortgages in payment holidays currently represent 43%,
and 23% for Chester A and Stratton Mortgage respectively as a proportion
of the current pool balance.
By contrast, in RMAC No.2 plc delinquency levels were high
at closing, but remain fairly stable, with arrears of over
90 days past due as a percentage of current balance standing at 8.3%,
however the portfolio contains a high proportion of restructured loans
which historically have been more vulnerable in time of economic downturn,
as well as 21% payment holidays as a proportion of the current
pool balance. Polaris 2019-1 shows lower levels of delinquency,
but is exposed to high portion of self-employed borrowers and borrowers
with negative credit history, indicating a relatively weaker borrower
credit profile.
After an analysis of the level of coronavirus-related payment holidays
and the performance, Moody's increased the EL assumptions
as a percentage of original portfolio balance of Polaris 2019-1
to 3.50% from 3.00%, Chester A to 5.50%
from 4.00%, Stratton Mortgage to 4.5%
from 4.0% and RMAC No.2 to 3.50% from
3.00%. Moody's MILAN CE numbers for Chester
A and Stratton Mortgage were increased to 20.00% from 18.50%
and to 16.00% from 15.00%, respectively.
Since all four transactions closed less than three years ago, they
have only had limited time to build up additional credit enhancement to
offset the negative impact of the coronavirus pandemic. Moody's
has downgraded the ratings of the notes that were most vulnerable to a
temporary increase in arrears and economic disruption.
Moody's also increased the EL assumptions as a percentage of original
portfolio balance of the following transactions: HAWKSMOOR MORTGAGE
FUNDING 2019-1 PLC to 4.70% from 4.50%,
Together Asset Backed Securitisation 2019-1 plc to 7.50%
from 7.00% and RMAC No.1 Plc to 3.50%
from 3.00% following an analysis of the level of coronavirus-related
payment holidays and the anticipated deterioration in performance of those
transactions. Moody's maintained the EL assumptions as a percentage
of original portfolio balance of the other transactions included in today's
action as our current EL assumptions are already commensurate with additional
losses arising from an anticipated deterioration in collateral performance.
Most of the transactions where we maintained the EL assumption have high
seasoning and relatively low loan to value ratios despite high delinquencies
to date. Moody's MILAN CE remained otherwise unchanged apart
from the two transactions as referenced above.
Moody's assessed the exposure to Natwest Markets Plc acting as swap
counterparty in RMAC SECURITIES No. 1 PLC Series 2006-NS2.
Moody's analysis considered the risks of additional losses on the notes
if they were to become unhedged following a swap counterparty default
by using the CR assessment as reference point for swap counterparties.
Moody's concluded that the ratings of the M1a , M1c and M2c
notes of RMAC SECURITIES No. 1 PLC Series 2006-NS2 notes
are constrained by the swap agreement.
Moody's considered how the liquidity available in the transactions and
other mitigants support continuity of note payments, in case of
servicer default, using the CR assessment as a reference point for
servicers. The ratings of the Class A3a, A3b and A3c notes
of Kensington Mortgage Securities plc Series 2007-1, the
Class B notes of Chester A, the Class B notes in Polaris 2019-1,
the A2a and A2c notes in RMAC SECURITIES No. 1 PLC Series 2006-NS2,
the A2a notes in RMAC SECURITIES No. 1 PLC Series 2006-NS3
and A2a, A2b and A2c notes of RMAC SECURITIES No. 1 PLC Series
2007-NS1 continue to be constrained by servicer disruption risk.
The rapid spread of the coronavirus outbreak, the government measures
put in place to contain it and the deteriorating global economic outlook,
have created a severe and extensive credit shock across sectors,
regions and markets. Our analysis has considered the effect on
the performance of consumer assets from the collapse in the UK economic
activity in the second quarter and a gradual recovery in the second half
of the year. However, that outcome depends on whether governments
can reopen their economies while also safeguarding public health and avoiding
a further surge in infections. 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.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in May 2020 and available
at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1228742.
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:
Factors or circumstances that could lead to an upgrade of the ratings
include (1) performance of the underlying collateral that is better than
Moody's expected, (2) an increase in available credit enhancement,
(3) improvements in the credit quality of the transaction counterparties
and (4) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the ratings
include (1) an increase in sovereign risk, (2) performance of the
underlying collateral that is worse than Moody's expected, (3) deterioration
in the notes' available credit enhancement and (4) deterioration in the
credit quality of the transaction counterparties.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL429023
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
• Key Rationale for Action
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.
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_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Yunkun Zhang
Associate Lead 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
Masako Oshima
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Lam Tran Ngoc
Analyst
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
