Frankfurt am Main, March 29, 2021 -- Moody's Investors Service ("Moody's") has today
downgraded the rating of one class of notes in E-MAC NL 2006-NHG
I B.V.:
....EUR600M Class A Notes, Downgraded
to Ba1 (sf); previously on Mar 8, 2018 Downgraded to Baa1 (sf)
RATINGS RATIONALE
The rating action is prompted by an erosion of excess spread, a
deterioration in the level of available credit enhancement due to the
gradual depletion of the reserve fund, and an increase in the risk
of set-off for life insurance loans following the bankruptcy of
the Dutch insurance company Conservatrix in December 2020.
Decrease in Available Credit Enhancement and Erosion of Excess Spread
Moody's has observed that over the past five IPDs the absolute amount
of interest proceeds after payments under hedging arrangements has been
negative, leading to drawings from the reserve fund, which
stands below its target and is gradually depleting. The reserve
fund is the only form of credit enhancement available for the Class A
notes, currently amounting to 0.78% of the Class A
notes balance. The deterioration of excess spread is in part driven
by the decrease in 3-month Euribor experienced over the past year.
The fixed-floating swaps entered into at closing of this transaction
or thereafter, which apply to fixed-rate loans, swap
3-month Euribor against a fixed swap rate. However,
under these swaps the floating leg is not floored at zero, and as
such the Issuer is currently paying the floating leg of these swaps to
the swap counterparty on top of the fixed leg. As 3-month
Euribor continues to be below 0%, the drain on excess spread
in this transaction will likely persist, leading to further depletion
of the reserve fund.
Counterparty Exposure
Today's rating action took into consideration the notes' exposure to Conservatrix,
a Dutch insurance company which has been declared bankrupt by an Amsterdam
court in December 2020. Conservatrix is the insurance provider
for a number of life insurance mortgage loans in the collateral pool backing
this transaction. The bankruptcy of Conservatrix has led to a heightened
risk that the borrowers under the relevant life insurance mortgage loans
may invoke the right of set-off or defences for the amount of the
insurance premiums paid into the insurance policy against the mortgage
loan, exposing this transaction to potential incremental losses.
Though the notes' exposure to Conservatrix is limited, it is possible
that these incremental losses would not be fully absorbed by the available
credit enhancement in the form of the reserve fund, given its small
size and ongoing depletion.
Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance to
date.
The performance of the underlying collateral has deteriorated slightly
over the past year. Total delinquencies have increased, with
90 days plus arrears currently standing at 0.42% of current
pool balance, up from 0.10% in January 2020.
Cumulative losses currently stand at 0.14% of original pool
balance, and have not increased over the past year.
Moody's maintained the expected loss assumption to 0.26%
as a percentage of original pool balance.
Moody's has also assessed loan-by-loan information as a
part of its detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future losses.
As a result, Moody's has maintained the MILAN CE at 5%.
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond
the end of the year. While persistent virus fears remain the main
risk for a recovery in demand, the economy will recover faster if
vaccines and further fiscal and monetary policy responses bring forward
a normalization of activity. As a result, there is a heightened
degree of uncertainty around our forecasts. Our analysis has considered
the effect on the performance of consumer assets from a gradual and unbalanced
recovery in Dutch economic activity.
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 this rating was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in December 2020 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1248130.
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
a rating for an RMBS security 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 rating:
Factors or circumstances that could lead to an upgrade of the rating include
(1) performance of the underlying collateral that is better than Moody's
expected; (2) an increase in available credit enhancement; and
(3) improvements in the credit quality of the transaction counterparties.
Factors or circumstances that could lead to a downgrade of the rating
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
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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Yuval Toledano
Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
