Approximately EUR 27.7 billion of debt securities affected
London, 21 July 2011 -- Moody's Investors Service has today downgraded the ratings of 30 tranches
of 14 Irish residential mortgage-backed securities (RMBS) transactions.
All affected ratings appear at the end of the press release.
RATINGS RATIONALE
Today's rating action reflects: 1) the decline in the credit
quality of the Irish government's sovereign debt as indicated in Moody's
downgrade of the rating of its debt to Ba1 from Baa3 of on 12 July 2011;
2) the failure by relevant counterparties to either comply with trigger
breaches or to implement in a timely fashion proposed structural changes
to mitigate the risk of disruption in the performance of major transaction
parties and 3) the increased likelihood of severe events, which
means that Moody's expects that Irish RMBS transactions will no longer
retain or achieve a rating higher than A1(sf), which is six notches
above the government's rating.
- HIGHEST RATING FOR MOST IRISH RMBS TRANSACTIONS IS A1(sf)
Moody's revision to A1(sf) of the maximum achievable rating for
Irish RMBS transactions from its prior level of Aa2(sf), reflects
the continued weakness in the Irish economy and the challenges the government
is facing in implementing its fiscal consolidation plan. In particular,
there is a growing possibility that Ireland will need further official
financing before being able to access the market. The maximum rating
achievable for Irish structured finance transactions reflects the rating
level beyond which structural features or credit enhancement cannot fully
mitigate the impact of highly severe events and the level of uncertainty
around them in the context of the extreme weakening of sovereign financial
strength. The consequences of these events, include possible
changes in the terms or enforcement of certain debt contracts that could
overwhelm the benefits of credit enhancement and structural mitigants.
Moody's explained the relationship between sovereign ratings and
structured finance ratings in a special report, "Assessing the Impact
of the Eurozone Sovereign Debt Crisis on Structured Finance Transactions",
published in April 2011.
Moody's has therefore downgraded to A1(sf) 20 tranches in 9 transactions
that it had rated above this maximum achievable rating. These tranches
include senior notes in 6 Celtic transactions (Celtic 11,12,13,14,
15 and 16) and senior notes in 3 Phoenix transactions (Phoenix 2,3
and 4).
- INCREASED COLLATERAL RISK
The risk of Irish mortgages has been steadily increasing and will continue
to do so. Delinquency rates have increased systematically over
the past year and 90-plus arrears in Irish Prime RMBS rose to 7.6%
in April 2011 from 4.6% in April 2010. Redemption
rates declined to 3.6% in April 2011 from 4.7%
in April 2010 while realised losses are still very low because of legal
and regulatory disincentives to foreclosure on properties. Last
March 2011, Moody's increased lifetime loss assumptions for
all Irish RMBS transactions in consideration of rapidly deteriorating
asset performance (please refer to the press release "Moody's
downgrades ratings in 17 Irish Prime RMBS", published on 10
March 2011). The extent of ongoing deterioration will determine
if further increases in lifetime loss assumptions are appropriate.
As a result of the increasing risk of Irish mortgages in light of the
weakening Irish economy and the declining credit quality of the Irish
sovereign debt , the credit enhancement for some transactions is
not sufficient to withstand the higher risk of severe events.
Moody's has concluded that the credit enhancement of class A notes
in Celtic 9 (11.6%) is not commensurate with the current
rating of this note in consideration of the greater sovereign risk and
the performance of this transaction to date. Therefore, Moody's
has downgraded to Baa1(sf) from A3(sf) the senior notes issued by Celtic
9.
RMBS senior tranches may retain A1(sf) only if they benefit from high
credit enhancement, ranging from 20% to 25%,
and have low performance disruption risk, as described below.
- INCREASING RISK OF PERFORMANCE DISRUPTION AND COMMINGLING RISK
In line with rating guidance entitled "Global Structured Finance Operational
Risk Guidelines: Moody's Approach to Analyzing Performance Disruption
Risk", published in March 2011, Moody's has taken rating actions
to reflect the adverse impact of the potential deterioration of credit
quality of transaction parties in Irish RMBS.
The deterioration of the credit quality of Irish banks led to many of
the rating actions on Irish RMBS. Servicers of most Irish RMBS
are Irish banks, the rating of many of which had fallen to non-investment
grade in March. The transactions' calculation agents and cash managers
are either Irish banks or other European or American banks. In
assessing the impact of the potential deterioration of transaction parties,
Moody's addresses the credit quality of the parties together with mitigants
of their risk, including the amount of liquidity and back-up
servicing arrangements.
The finalization of many of the rating actions on RMBS depends on proposals
to strengthen the mitigants. In March 2011 Moody's had downgraded
50 tranches in 17 prime Irish RMBS and maintained on review for downgrade
the ratings of 16 tranches in nine transactions pending the implementation
of a variety of proposals put forward by transaction sponsors to address
performance disruption risk. Thus far, Moody' has received
final drafts and definitive timelines for implementation for the following
transactions: Emerald 5, Fastnet 3, Fastnet 5,
Fastnet 6 and Fastnet 7. Moody's maintains on review the
senior ratings in these transactions and expects to conclude the review
within the next month. Moody's has downgraded the senior
notes in the remaining 4 transactions because Moody's has not received
any short term implementation plan so far as discussed in detail further
below.
The adequacy of the mitigants depends on the amount of liquidity as well
as back-up arrangements. For transactions that have adequate
liquidity and have servicers rated Baa3 or above, the senior notes
can retain A1(sf) ratings, subject to minimum credit enhancement
tests described above. Transactions serviced by Irish banks that
have non-investment grade ratings but benefit from certain features
can retain ratings of A1(sf), again subject to credit enhancement
tests. These features include having a back up servicer in place,
independent cash managers, sufficient liquidity, and so-called
"estimates" language in the transaction documents, which
would allow continuity of note payment if the servicer fails to produce
a servicing report. In the case of transactions without sufficient
mitigants to payment disruption risk and with a servicer rated below investment
grade, the highest senior debt ratings would be Baa1(sf) and below
because of Moody's conclusion that the risk of performance disruption
is not consistent with single-A ratings. Today's rating
action also takes into account increased commingling risk in transactions
with a non-prime issuer account bank.
Emerald Mortgages No. 5 Limited
Moody's maintains the senior notes of this transaction on review
because an appointment of a backup servicer is in process. In February
2011, EBS Ltd("EBS", Ba2/NP) restructured Emerald
to mitigate the performance disruption risk in the transaction.
The Issuer had appointed Deutsche Bank AG, London Branch(Aa3/(P)P-1),
as back-up cash manager and Ulster Bank Ireland Limited (A2 / P-1,
both on review for downgrade) as issuer account bank. Moody's
placed on review for downgrade the senior notes, pending the appointment
of a back-up servicer at that time. EBS has notified Moody's
that the appointment process is due to be completed in August.
Fastnet Transactions (2, 3, 4, 5, 6, 7 and
8)
The progress in addressing performance disruption risk varies across these
transactions. Irish Life & Permanent plc ("IL&P",
Ba2/NP) acts in various roles in these transactions and is the key transaction
party that presents performance disruption risk. Moody's has received
proposals to restructure some of the transactions.
In Fastnet 3 and Fastnet 6, progress is happening quickly,
and Moody's maintains on review the ratings of the senior notes
pending finalization of a back-up servicing arrangement.
The issuer account bank is BNP Paribas Securities Service, London
Branch ("BNPSL", Aa2 on review for downgrade/P-1),
guaranteed by BNP Paribas ("BNP", Aa2 on review for downgrade/P-1).
BNPSL is also the back-up cash manager and BNP is the back-up
servicer facilitator. There is enough liquidity in the transactions,
and cash manager is able to make payments independently from the receipt
of servicer reports during a servicing disruption. In February
2011, Moody's assigned A1(sf) ratings, under review for possible
downgrade to Fastnet 3 and Fastnet 6, pending the appointment of
a back-up servicer. Moody's has been notified that a back-up
servicer has been found and that the parties will sign final documents
within the next few weeks.
In Fastnet 5 and Fastnet 7, mitigants will soon be in place,
and Moody's therefore maintains on review the rating of the senior
notes pending finalization of the mitigation plans. IL&P still
acts as the issuer account bank and mortgage administrator.Moody'
has received draft documents with regards to the introduction of servicer
report estimation language, the appointment of a third-party
issuer account bank, back-up servicer, bank-up
servicer facilitator and back-up cash manager. The Issuers'
agent has notified Moody's that the parties will sign final documents
within the next month.
Fastnet 2 and Fastnet 4 have not yet succeeded in putting mitigants into
place, and Moody's has downgraded to Baa2(sf) the senior notes
of both transactions. There is no back-up servicer,
back-up servicer facilitator or back-up cash manager in
these transactions. The restructure proposals do not include the
introduction of servicer report estimation language and the appointment
of a back-up servicer facilitator. In addition, Moody's
has not received a definitive timeline for the implementation of the amendments.
The high linkage in these transactions to IL&P has therefore prompted
Moody's downgrade.
In Fastnet 8, Moody's is concerned about payment continuity
in case of servicer disruption and has therefore downgraded to Baa1(sf)
the notes issued by Fastnet 8. The issuer account bank is BNP Paribas
("BNP", Aa2 on review for downgrade/P-1). The trustee
will appoint a back-up servicer, but there will be no back-up
cash manager or back-up servicer facilitator. The cash management
agreement does not contemplate estimation language.
Kildare Securities Limited
Moody's is concerned about the linkage with ICS in this transaction increasing
both operational risk and credit commingling exposure. Moody's
has therefore downgraded the notes issued by Kildare Securities Limited
to Baa1(sf). ICS Building Society ("ICS", Ba1/NP) acts as
the issuer account bank, GIC account bank and servicer. There
is no back-up servicer, back-up servicer facilitator
or back-up cash manager in the transaction. Although the
trustee has notified Moody's that it will move the GIC account to
a third party, the issuer account will remain with ICS.
RATING METHODOLOGIES
The determination of the highest achievable ratings and minimum credit
enhancement requirements described above complement the applicable principal
methodologies for each asset class.
The principal methodology used in this rating was Moody's Approach to
Rating RMBS in Europe, Middle East, and Africa, published
in October 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
LIST OF RATING ACTIONS:
Issuer: Celtic Residential Irish Mortgage Securitisation No.9
Plc
....EUR1067.5M A2 Certificate,
Downgraded to Baa1; previously on Mar 10, 2011 Downgraded to
A3
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURISATION NO.
11 PLC
....EUR385M A2a Certificate, Downgraded
to A1; previously on Mar 10, 2011 Downgraded to Aa1
....US$328M A2b Certificate,
Downgraded to A1; previously on Mar 10, 2011 Downgraded to
Aa1
Issuer: Celtic Residential Irish Mortgage Securitisation No.12
Ltd.
....EUR487.5M A2 Notes, Downgraded
to A1; previously on Mar 10, 2011 Downgraded to Aa2
Issuer: Celtic Residential Irish Mtge Sec No. 13 Ltd
....EUR538.95M A2 Certificate,
Downgraded to A1; previously on Mar 10, 2011 Downgraded to
Aa2
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO.
14
....EUR1000M A1 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR1000M A2 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR1000M A3 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR1000M A4 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR763.15M A5 Certificate,
Downgraded to A1; previously on Feb 16, 2011 Assigned Aa2
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO.
15
....EUR700M A1 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR700M A2 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR700M A3 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR700M A4 Certificate, Downgraded
to A1; previously on Feb 16, 2011 Assigned Aa2
....EUR547.05M A5 Certificate,
Downgraded to A1; previously on Feb 16, 2011 Assigned Aa2
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO.
16 LTD
....EUR260M A1 Certificate, Downgraded
to A1; previously on Mar 10, 2011 Downgraded to Aa2
....EUR260M A2 Certificate, Downgraded
to A1; previously on Mar 10, 2011 Downgraded to Aa2
....EUR257M A3 Certificate, Downgraded
to A1; previously on Mar 10, 2011 Downgraded to Aa2
Issuer: Fastnet Securities 2 PLC
....EUR1656M A2 Certificate, Downgraded
to Baa2; previously on Mar 10, 2011 Downgraded to A3 and Remained
On Review for Possible Downgrade
Issuer: Fastnet Securities 4 Ltd
....EUR2080M A1 Certificate, Downgraded
to Baa2; previously on Mar 10, 2011 Downgraded to A1 and Remained
On Review for Possible Downgrade
....EUR2080M A2 Certificate, Downgraded
to Baa2; previously on Mar 10, 2011 Downgraded to A1 and Remained
On Review for Possible Downgrade
....EUR2080M A3 Certificate, Downgraded
to Baa2; previously on Mar 10, 2011 Downgraded to Baa1
Issuer: Fastnet securities 8 Ltd
....EUR483M A1 Certificate, Downgraded
to Baa1; previously on Mar 10, 2011 Downgraded to A3 and Remained
On Review for Possible Downgrade
....EUR483M A2 Certificate, Downgraded
to Baa1; previously on Mar 10, 2011 Downgraded to A3 and Remained
On Review for Possible Downgrade
....EUR483M A3 Certificate, Downgraded
to Baa1; previously on Mar 10, 2011 Downgraded to A3 and Remained
On Review for Possible Downgrade
Issuer: Kildare Securities limited
....US$1451.6M A2 Notes,
Downgraded to Baa1; previously on Mar 10, 2011 Downgraded to
A3 and Remained On Review for Possible Downgrade
....EUR1062M A3 Notes, Downgraded to
Baa1; previously on Mar 10, 2011 Downgraded to A3 and Remained
On Review for Possible Downgrade
Issuer: Phoenix Funding 2 Limited
....EUR7125M A Notes, Downgraded to
A1; previously on Jun 2, 2011 Downgraded to Aa3
Issuer: Phoenix funding 3 Limited
....EUR3040M A Notes, Downgraded to
A1; previously on Jun 2, 2011 Downgraded to Aa3
Issuer: Phoenix Funding 4 Limited
....EUR748M A Notes, Downgraded to A1;
previously on Jun 2, 2011 Downgraded to Aa3
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the credit rating action. Please see the
ratings disclosure page on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
London
Ming Zhou
Asst Vice President - 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 downgrades Irish RMBS structured finance transactions
