Approximately GBP 389 million of rated debt securities affected
Milan, December 07, 2010 -- Issuer: Whinstone Capital Management Limited
GBP 35M B1 Certificate, Downgraded to Baa3 (sf); previously
on Nov 16, 2005 Definitive Rating Assigned Baa2 (sf)
EUR 67.8M B2 Certificate, Downgraded to Baa3 (sf); previously
on Nov 16, 2005 Definitive Rating Assigned Baa2 (sf)
US$ 40.3M B3 Certificate, Downgraded to Baa3 (sf);
previously on Nov 16, 2005 Definitive Rating Assigned Baa2 (sf)
GBP 21M C1 Certificate, Downgraded to B2 (sf); previously on
Nov 16, 2005 Definitive Rating Assigned Ba2 (sf)
EUR 115.2M C2 Certificate, Downgraded to B2 (sf); previously
on Nov 16, 2005 Definitive Rating Assigned Ba2 (sf)
US$ 32M C3 Certificate, Downgraded to B2 (sf); previously
on Nov 16, 2005 Definitive Rating Assigned Ba2 (sf)
Issuer: WHINSTONE 2 CAPITAL MANAGEMENT LIMITED
GBP 80M C1 Notes, Downgraded to B2 (sf); previously on Jun
20, 2006 Definitive Rating Assigned Ba2 (sf)
EUR 129M C2 Notes, Downgraded to B2 (sf); previously on Jun
20, 2006 Assigned Ba2 (sf)
RATINGS RATIONALE
Whinstone is a transaction closed in November 2005, under which
Northern Rock Asset Management plc ("NRAM") receives credit
protection on the Issuer Reserve Funds of the transactions issued out
of Funding of Granite Master Trust.
Whinstone 2 is a transaction closed in June 2006, under which NRAM
receives credit protection on a certain portion of the Granite Master
Issuer Reserve Fund and the Funding 2 Reserve Fund that are both part
of the Granite Master Trust.
Today's rating actions take into account worse than expected collateral
performance within Granite, which has resulted in increased loss
expectations for the mortgage portfolio, continued draws on the
Granite Funding reserve fund, and low excess spread observed in
the trust as a whole.
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN Aaa
Credit Enhancement (MILAN Aaa CE) and the portfolio expected loss,
as well as the transaction structure as assessed in Moody's cash flow
analysis. The expected loss 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.
Portfolios Expected Loss: Moody's has reassessed its lifetime loss
expectation for the portfolio backing Granite master trust taking into
account the collateral performance to date. The portfolio has been
performing worse than Moody's initial assumptions. Cumulative losses
amount to 0.94% of the original portfolio balance,
repossessions over the last 12 months represent approximately 1.25%
of the outstanding portfolio balance with average loss severity in 2010
of 22%, and the arrears levels in the portfolio are relatively
high - currently 90+ days delinquencies constitute 5.68%
of the outstanding portfolio . Furthermore, the Granite master
trust portfolio has been affected by the adverse macroeconomic conditions,
such as increase in unemployment and house price depreciation, as
well as by the negative selection of loans remaining in the pool and these
factors are expected to impact future performance. Considering
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 increased its total loss expectations to 2.5%
of the current portfolio balance.
MILAN Aaa CE: Moody's has assessed the loan-by-loan
information for the portfolio and has increased our MILAN Aaa CE assumption
to 23.0%. This increase reflects (i) the weighted
average loan-to-value (LTV) of 78.87% with
63% of the pool having LTV higher than 80%,(ii) the
presence in the pool of 37% of Interest Only mortgage loans,
and (iii) the high portion of Together mortgage loans (38.5%)
that historically have shown an adverse performance.
The other factors that have lead to today's rating actions are:
(i) the continuing draws on Funding reserve fund, which currently
is at GBP49,124,401 (1.42% of Funding notes
outstanding), whereas the required amount is GBP57,670,313
(1.67% of Funding notes outstanding) and (ii) the increased
WA note coupon of Funding and Funding 2 (0.19% and 0.24%respectively)
that is expected to increase to 0.25% and 0.70%
respectively in a year at current CPR levels.
The rating addresses the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for payment of principal with respect of the notes by the legal
final maturity. Moody's ratings only address the credit risk associated
with the transaction. Other non-credit risks have not been
addressed, but may have a significant effect on yield to investors.
The principal methodologies used in this rating were Moody's Approach
to Rating UK RMBS published in April 2005, Moody's Updated Methodology
for Rating UK RMBS published in November 2007 and Moody's RMBS Master
Trust Cash Flow Analysis, April 2008.
Moody's Investors Service received and took into account a third party
due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
REGULATORY DISCLOSURES
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 credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's Investors
Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Additional research, including the pre-sale report for this
transaction and reports for prior transactions, are available at
www.moodys.com. In addition 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
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 www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Milan
Pier Paolo Vaschetti
Vice President - Senior Analyst
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
London
Neal Shah
MD - Structured Finance
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Moody's downgrades UK RMBS notes issued by Whinstone Capital Management Limited and Whinstone 2 Capital Management Limited