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Rating Action:

Moody's downgrades 8 tranches of notes issued by Newgate 2006-1, Newgate 2007-1 and Newgate 2007-2

29 Apr 2008
Moody's downgrades 8 tranches of notes issued by Newgate 2006-1, Newgate 2007-1 and Newgate 2007-2

Approximately GBP 53.5 million of debt securities affected

London, 29 April 2008 -- Moody's Investors Service announced today that it downgraded 8 classes of notes issued by Newgate Funding PLC: Series 2006-1 (Newgate 2006-1), Newgate Funding PLC: Series 2007-1 (Newgate 2007-1) and Newgate Funding PLC: Series 2007-2 (Newgate 2007-2) the following classes of notes;

Issuer: Newgate Funding PLC: Series 2006-1 ("Newgate 2006-1")

Class D, Current Rating Baa3, downgraded to Ba3

Class E, Current Rating Ba2, downgraded to B3

Issuer: Newgate Funding PLC: Series 2007-1 ("Newgate 2007-1")

Class Db, Current Rating Baa3, downgraded to Ba2

Class E, Current Rating Ba2, downgraded to B2

Class F, Current Rating Ba3, downgraded to B3

Issuer: Newgate Funding PLC: Series 2007-2 ("Newgate 2007-2")

Class Db, Current Rating Baa3, downgraded to Ba2

Class E, Current Rating Ba1, downgraded to B2

Class F, Current Rating Ba2, downgraded to B3

The rating actions were prompted by worse than expected collateral performance and unhedged interest rate risk which has exposed these transactions to recent interest rate volatility at levels above those initially modeled by Moody's. Today's rating actions take into account revised assumptions for excess spread reduction due to unhedged interest rate risk, as well as increased loss expectations accounting for the relatively high delinquency levels shown in the collateral performance of these portfolios. The transactions where originated by Mortgages plc, the origination platform of Merrill Lynch International Bank Ltd.

In March 2008, Newgate 2006-1 has drawn on its reserve fund which is currently at 92.1% of its required level. The drawing was primarily due to unhedged basis risk between interest received on the mortgage loans, ultimately linked to BBR, and the 3-Month-GBP-Libor due on the notes. Approximately 87.5% of the pool currently comprises floating rate loans exposed to the base rate mismatch. For the fixed rate portion of the pool, the transaction benefits from interest rate cap agreements with a strike rate of 4.8% for loans resetting to floating before January 2009 and a strike of 6.75% for loans resetting up until March 2010. As of March 2008, the detachable coupon stepped up from the initial 0.75% to a final 1.25% which will cause further excess spread stripping accounted for in the cash-flow modeling. In addition, the liquidity facility cost will increase in the next quarter as the provider (Barclays Bank plc) did not renew its commitment. With respect to performance, the transaction is deviating from the UK non-conforming market index and at 24 months since issuance, delinquencies 90+ days correspond to 15.05% of current principal balance (CB), outstanding unsold repossession rate is at present 2.46% of CB and 0.23% cumulative losses of original pool balance (OB) have been realised. Taking into account the current amount of realised losses and completing a roll-rate and severity analysis for the non-defaulted portion of the portfolio, Moody's has adjusted its loss expectations to 2.25% of original balance. The transaction is currently paying sequential, and it will not pay pro rata unless the reserve fund is replenished to its required amount. Newgate 2006-1 closed in March 2006 and its current pool factor is 49%.

The reserve funds for both Newgate 2007-1 and Newgate 2007-2 were also drawn as of the last IPD and they are currently equal to 84.5% and 85.4% of their respective required levels. Similarly to Newgate 2006-1, the drawings were mainly due to liquidity shortfalls caused by unhedged interest rate risk in the structures. Approximately 92.6% (Newgate 2007-1) and 96.8% (Newgate 2007-2) of the pools are currently still in the fixed rate period. In these transactions the fixed-floating swap provides only a partial hedging as the 3-month-GBP-Libor payable by the swap counterparty resets 3 times in the quarter whereas the GBP Libor payable on the Notes resets quarterly. Due to the decreasing Libor in the last three months, the GBP LIBOR paid by the swap has been lower than the Note Libor, reducing the available excess spread. These transactions are also exposed to a BBR - Libor mismatch for the floating rate portion of the collateral and loans in arrears are not covered by the fixed floating swap. Moody's expects that the reserve funds in these two transactions may continue to be below the target level in the next few quarters. In addition, the transactions are performing worse than Newgate 2006-1 and the UK non-conforming market index. At only 12 and 9 months since issuance, these transactions have particularly high levels of 90+days delinquencies equal to 11.35% and 11.07% of CB and outstanding unsold repossession rate stands at 1.07% and 0.72% of CB respectively. Moody's has increased its required credit enhancement levels and adjusted its loss expectations to 2.7% of the original balance for Newgate 2007-1 and to 2.9% of the original balance for Newgate 2007-2. Newgate 2007-1 and Newgate 2007-2 closed in March and June 2007 and their current pool factors are 92% and 95% respectively.

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 transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Please refer also to the Index report "UK-Non Conforming RMBS Q4 2007 Index" which can be found on www.moodys.com under the Credit Index category of Structured Finance research. Please also refer to the special report "Interest Rate Risks in UK RMBS -- Moody's approach" for an overview of Moody's view on interest rate risk in UK RMBS.

Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

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