EUR 324.85 million of debt securities affected
Madrid, March 17, 2011 -- Moody's Investors Service announced today that it has downgraded the ratings
of seven notes issued by Lansdowne Mortgage Securities 1 and 2 ("Lansdowne
1 and Lansdowne 2"). A detailed list of the rating actions
is provided at the end of this press release.
The seven affected tranches, had been placed on review for possible
downgrade on 2 December 2010 due to worse-than-expected
collateral performance and considerations on the macro-economic
environment in Ireland. Today's rating actions conclude the review
and take into account the increased loss expectations for the two mortgage
portfolios backing Lansdowne 1 and Lansdowne 2.
RATINGS RATIONALE
Today's rating action is driven by the poor and rapidly deteriorating
performance of the collateral in these two transactions as a result of
the weakened macro-economic environment. It also reflects
Moody's expectation that arrears in Irish RMBS will continue to rise through
2011 and will remain at elevated levels for several years.
Key collateral assumptions revised
Lansdowne 1 and Lansdowne 2 are performing significantly worse than Moody's
expectations as of the latest review in December 2009. As of December
2010, loans more than 90 days in arrears had increased to 47.16%
of current balance in Lansdowne 1 and 48.51% in Lansdowne
2 compared to 32% and 34% as of September 2009. Cumulative
losses realized since closing remain low at 0.19% and 0.25%
of original pool balance for Lansdowne 1 and 2. Moody's notes
that loss realization is slow for Irish RMBS given lengthy enforcement
procedures in Ireland and moratorium imposed. For this reason,
Moody's considers loans with delinquencies exceeding 270 days as a proxy
for defaults. As of the December 2010 payment date, the 270+
delinquencies for these two transactions had increased to 28.34%
of the outstanding pool balance in Lansdowne 1 and 31.58%
in Lansdowne 2 compared to 16.72% and 19.9%
as of September 2009. 66.26% and 74.37%
of the loans that were delinquent up to 270 days ) as of August 2009 have
deteriorated their performance and moved into a higher arrears bucket
by August 2010. Sales of properties resulted in severities above
50% in the recent quarters.
Moody's expects that the increasing unemployment and lower income arising
from the austerity measures will continue to hurt borrower's ability to
fulfill their financial obligations. The collateral performance
in these two transactions will also be negatively affected by interest
rate increase as most of the mortgage loans are floating rate.
A high proportion of the loans in the pools are impaired credit loans
or have limited borrower income verification; this makes the borrowers
particularly vulnerable to economic stress. In addition to high
arrears the loss severity will also be high as a result of the oversupply
of housing, lack of refinancing and further decline in house prices,
expected to be equal to approximately 45% decline from peak to
trough in the base case. As a result Moody has increased the portfolio
expected loss assumption to 8% and 13.5% of original
pool balance for Lansdowne 1 and 2 (25% and 30% of current
balance respectively). Moody's has revised the MILAN Aaa
CE assumption for Lansdowne 1 to 60% because of the risky pool
characteristics In the case of Lansdowne 2 Moody's notes that the
available credit enhancement (excluding excess spread) for the senior
notes (22.7%) is lower than the expected loss assumption
for the portfolio. Hence each of the tranches will ultimately suffer
a loss in the expected loss scenario as reflected in today's rating action.
The extent of the losses on the tranches will depend on the recoveries
received on the defaulted loans.
TRANSACTION FEATURES
Lansdowne 1 and 2 closed in April 2006 and November 2006 respectively
and their current pool factors are approximately 31.7% and
44.06%. The assets supporting the notes are first-ranking
mortgage non-conforming loans secured on residential properties
located in Ireland. The asset pools had an indexed weighted average
loan-to-value (LTV) of 74.93% in Lansdowne
1 and 87.03% in Lansdowne 2 as of Q3 2010 according to Moody's
computations.
The pools backing the notes consist of impaired credit loans and non-conforming
loans. Impaired credit loans represented 12.57% in
Lansdowne 1 and 10.54% in Lansdowne 2, while borrowers
with missed payments on their previous mortgage amounted to 38.95%
in Lansdowne 1 and 35.12% in Lansdowne 2, as of August
2010. Non-conforming loans include loans with limited verification
of borrower income which represented 23.92% in Lansdowne
1 and 43.26% in Lansdowne 2, as of the same date.
Reserve funds for Lansdowne 1 and 2 are fully funded and cannot amortize
as the delinquency trigger has been breached. Although the transactions
benefit from sizeable excess spread, it is not being trapped to
provision for future losses on the delinquent loans and can only be used
to cover losses already realised.
For details on the deal structure, please refer to the "Lansdowne
1 and Lansdowne 2" new issue report available on www.moodys.com.
Please also refer to the "Irish RMBS December 2010 Indices", which
is available on www.moodys.com in the Industry / Sector
Research sub-directory under the Research & Ratings tab.
Moody's ratings address the expected loss posed to investors by the legal
final maturity of the notes (June 2045 and September 2048 respectively).
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.
The principal methodologies used in Lansdowne 1 rating were Moody's MILAN
Methodology for Rating Irish RMBS published in April 2009 and Revising
Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction published
in December 2008.
The principal methodology used in Lansdowne 2 rating was "Revising
Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction"
published in December 2008.
Moody's Investors Service did not receive or take into account a third-party
due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
REGULATORY DISCLOSURES
The ratings have 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 ratings 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 purpose of maintaining
a credit rating.
LIST OF RATING ACTIONS
Issuer: Lansdowne Mortgage Securities No. 1 p.l.c
....EUR258M A2 Certificate, Downgraded
to Baa3 (sf); previously on Dec 2, 2010 Aa1 (sf) Placed Under
Review for Possible Downgrade
....EUR13.85M M1 Certificate,
Downgraded to Caa2 (sf); previously on Dec 2, 2010 A1 (sf)
Placed Under Review for Possible Downgrade
....EUR9.25M M2 Certificate,
Downgraded to Ca (sf); previously on Dec 2, 2010 Ba1 (sf) Placed
Under Review for Possible Downgrade
....EUR11.1M B1 Certificate,
Downgraded to C (sf); previously on Dec 2, 2010 Caa2 (sf) Placed
Under Review for Possible Downgrade
Issuer: Lansdowne Mortgage Securities No. 2 p.l.c.
....EUR372.75M A2 Certificate,
Downgraded to Caa1 (sf); previously on Dec 2, 2010 A2 (sf)
Placed Under Review for Possible Downgrade
....EUR15.75M M1 Certificate,
Downgraded to C (sf); previously on Dec 2, 2010 Ba2 (sf) Placed
Under Review for Possible Downgrade
....EUR11.8M M2 Certificate,
Downgraded to C (sf); previously on Dec 2, 2010 Caa2 (sf) Placed
Under Review for Possible Downgrade
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.
Madrid
Maria Turbica Manrique
Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
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 Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades ratings of Irish Non-Conforming RMBS issued by Lansdowne Mortgage Securities 1 and 2