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Rating Action:

Moody's downgrades ratings of notes issued by two transactions of the Newgate Series 2007

14 Aug 2009

Approximately GBP 820 million of debt securities affected.

London, 14 August 2009 -- Moody's Investors Service has today downgraded the ratings of 16 classes of notes and has confirmed the ratings of 7 classes of notes issued by Newgate Funding Plc. The 23 affected tranches, listed below, had been placed on review for possible downgrade on 26 June 2009 due to worse-than-expected collateral performance. Today's rating actions conclude the review and take into account the increased loss expectations for the two mortgage portfolios backing Newgate Funding Series 2007-1 and Newgate Funding Series 2007-2 (together "the Affected Transactions").

Newgate Funding Series 2007-1 closed in March 2007 and the current pool factor is approximately 76%. The assets supporting the notes are "near prime", sub-prime and non-conforming mortgage loans secured by residential properties located in England, Wales, Scotland and Northern Ireland, with approximately 65% of the outstanding portfolio represented by interest-only loans. The original weighted average LTV at closing was approximately 79% while the current weighted average indexed LTV has increased to approximately 93%. As a result of the house price depreciation after closing, approximately 40% of the outstanding portfolio is currently characterized by an indexed LTV higher than 100%. In this respect, the mortgages in negative equity show a proportion of 90+ days delinquencies approximately 50% higher than the rest of the portfolio.

The cumulative losses realized since closing in Newgate Funding Series 2007-1 amount to 1.01% of the original portfolio balance, with an average loss severity of 24.44%. The reserve fund, fully funded at closing, has been completely depleted and the transaction is currently experiencing an unpaid PDL on the Class F note of approximately GBP218,000.

Newgate Funding Series 2007-2 closed in June 2007 and the current pool factor is approximately 85%. The assets supporting the notes are "near prime", sub-prime and non-conforming mortgage loans secured by residential properties located in England, Wales, Scotland and Northern Ireland, with approximately 66% of the outstanding portfolio represented by interest-only loans. The original weighted average LTV at closing was approximately equal to 78% while the current weighted average indexed LTV has increased to approximately 94%. As a result of the house price depreciation after closing, approximately 44% of the outstanding portfolio is currently characterized by an indexed LTV higher than 100%. As in Newgate Funding Series 2007-1, the mortgages in negative equity show a proportion of 90+ days delinquencies approximately 50% higher than the rest of the portfolio.

The cumulative losses realized since closing in Newgate Funding Series 2007-2 amount to 0.90% of the original portfolio balance, with an average loss severity of 28.85%. The reserve fund, fully funded at closing, has been completely depleted and the transaction is currently experiencing an unpaid PDL on the class F note of approximately GBP432,000.

According to the latest investor reports, 90+ days delinquencies (including outstanding repossessions) have increased in the last quarter from 27.0% to 30.2% of the outstanding balance of the portfolio in Newgate Funding Series 2007-1 and from 25.9% to 31.1% in Newgate Funding Series 2007-2. These levels of 90+ arrears are partially overstated by the common practice of computing the number of months in arrears by dividing the arrears amount by the last monthly installment. In its analysis, Moody's has taken this into account by using, whenever available, loan-by-loan data of the past quarters to derive the previous monthly installments to be used for the arrears computation.

In the last quarter, the loans in arrears which have not made any payment have been approximately equal to 16.0% of the current portfolio balance in Newgate Funding Series 2007-1 and to 21.4% in Newgate Funding Series 2007-2. Over the same period of time, the borrowers in arrears who have paid at least their contractual monthly installment amount to 19.7% of the current portfolio balance in Newgate Funding Series 2007-1 and 16.0% in Newgate Funding Series 2007-2. The ability of these delinquent borrowers to partially cure their arrears may be also linked to the current benign interest rate environment for the floating rate loans, which currently represent approximately 73.6% and 77.5% of the current portfolio balance in Newgate Funding Series 2007-1 and 2007-2 respectively. Moody's has taken into account that such payment ability could be put at risk in case the interest rate environment became less favorable in the future.

Both the Affected Transactions are exposed to unhedged basis risk between the interest received on the mortgage loans, ultimately linked to the BBR, and the 3-Month-GBP-Libor due on the notes. Additionally, in these transactions the fixed-floating swap provides only a partial hedging as the 3-Month-GBP-Libor payable by the swap counterparty resets monthly whereas the 3-Month-GBP-Libor payable on the Notes resets quarterly. These unhedged basis risks had been previously sized by Moody's and have not been the driver of today's rating actions.

Moody's has assessed updated loan-by-loan information of the outstanding portfolio to determine the increase in credit support needed and the volatility of future losses. As a consequence, Moody's has revised its Milan Aaa CE for both the Affected Transactions to 30% (vs. the previous assumption of 22.3% and 20.9% for Newgate Funding Series 2007-1 and 2007-2 respectively). In each of the Affected Transactions the Class A notes share the same PDL and their current available credit enhancement (excluding excess spread) equals approximately 21.4% in Newgate Funding Series 2007-1 and 17.7% in Newgate Funding Series 2007-2. The principal redemption within the Class A notes is fully sequential, hence these classes are expected to have significantly different average lives. In its cash flow analysis Moody's has taken the faster repayment of the Class A1 and Class A2 notes into account and this has led to the confirmation of their current ratings.

Considering the current amount of realized losses, and completing a roll-rate and severity analysis for the non-defaulted portion of the portfolio, Moody's has also increased its total loss expectations to 7.5% and 9% of the original portfolio balance for Newgate Funding Series 2007-1 and 2007-2 respectively (vs. 2.7% and 2.9% previously assumed).

The loss expectation and the Milan Aaa CE are the two key parameters used by Moody's to calibrate the loss distribution curve, which is one of the inputs into our RMBS cash-flow model. Moody's has also factored into its analysis the negative sector outlook for UK non-conforming RMBS. The sector outlook reflects the following expectations of key macro-economic indicators: GDP to contract by 4.1% in 2009, followed by growth of 0.9% in 2010, unemployment to increase to 9.6% by 2010 from 7.8% today, house prices to decrease by over 30% from their peak in 2007 to a trough in 2010 and further increases in personal insolvencies. For more detailed information please refer to Moody's Economy.Com.

The classes of notes affected by today's rating actions are:

Newgate Funding Series 2007-1:

- Class A1a, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A1b, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A1c, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A2, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A3, downgraded to Aa2; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class Ma downgraded to A2; previously on 26 June 2009 Aa1 and placed under review for possible downgrade;

- Class Mb downgraded to A2; previously on 26 June 2009 Aa1 and placed under review for possible downgrade;

- Class Ba downgraded to Baa3; previously on 26 June 2009 Aa3 and placed under review for possible downgrade;

- Class Bb downgraded to Baa3; previously on 26 June 2009 Aa3 and placed under review for possible downgrade;

- Class Cb downgraded to Caa1; previously on 26 June 2009 A3 and placed under review for possible downgrade;

- Class Db downgraded to Ca; previously on 26 June 2009 Ba2 and placed under review for possible downgrade;

- Class E downgraded to C; previously on 26 June 2009 B2 and placed under review for possible downgrade; and

- Class F downgraded to C; previously on 26 June 2009 B3 and placed under review for possible downgrade.

Newgate Funding Series 2007-2:

- Class A1a, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A1b, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A2, confirmed at Aaa; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class A3, downgraded to Aa3; previously on 26 June 2009 Aaa and placed under review for possible downgrade;

- Class M downgraded to Baa2; previously on 26 June 2009 Aa2 and placed under review for possible downgrade;

- Class Bb downgraded to Ba3; previously on 26 June 2009 Aa3 and placed under review for possible downgrade;

- Class Cb downgraded to Caa3; previously on 26 June 2009 A3 and placed under review for possible downgrade;

- Class Db downgraded to C; previously on 26 June 2009 Ba2 and placed under review for possible downgrade;

- Class E downgraded to C; previously on 26 June 2009 B2 and placed under review for possible downgrade; and

- Class F downgraded to C; previously on 26 June 2009 B3 and placed under review for possible downgrade.

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

Moody's will continue to monitor closely the above transactions. Moody's initially analysed and monitors these transactions using the rating methodology for EMEA RMBS as described in the Rating Methodology reports "Moody's Approach to Rating UK RMBS" published in April 2005, "Moody's Updated Methodology for Rating UK RMBS" published in November 2007 and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction" published in December 2008, as well as the Special Report "Interest Rate Risks in UK RMBS -- Moody's approach" published in October 2007. Please also refer to the "UK Non-Conforming RMBS Q1 2009 Indices", which can be found on www.moodys.com under the Credit Index category of Structured Finance research. Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Credit Policy & Methodologies directory.

For further information, please visit our website www.moodys.com or contact Moody's Client Service Desk (+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

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

Moody's downgrades ratings of notes issued by two transactions of the Newgate Series 2007
No Related Data.
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