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Rating Action:

Moody's downgrades the junior notes issued by Irish RMBS Emerald mortgages No.5 Limited

Global Credit Research - 27 May 2010

Approximately EUR 125 million of debt securities affected

London, 27 May 2010 -- Moody's Investors Service announced today that it has taken the following rating action on the junior notes issued by Emerald mortgages No.5 Limited (Emerald 5):

....EUR125M B Notes, Downgraded to Baa3; previously on Jul 22, 2009 Aa3 Placed Under Review for Possible Downgrade

Last rating action date for Emerald 5 was 22 July 2009, when the Class B was placed under review for possible downgrade given deterioration in credit trends, most specifically 90d+ arrears. There has been no rating action on the class A notes issued by Emerald 5 since the initial rating assignment in March 2008.

Today's rating action concludes the review and takes into consideration the worse-than-expected performance of the collateral. Moody's remains concerned about the future performance of the transaction given the rapid deterioration in credit trends, most specifically 360d+ arrears, and the uncertainties relating to the macro economic conditions in Ireland.

POOL COMPOSITION AND PORTFOLIO PERFORMANCE

Emerald 5 closed in March 2008. The transaction is backed by a portfolio of first-ranking mortgage loans originated by EBS Building Society (A2/P1) and secured on residential properties located in Ireland, for an overall balance of EUR 2.5 billion at closing. The weighted average non-indexed LTV is currently 72.2% compared to 80.8% at closing. The portfolio has a weighted average seasoning exceeding 68 months and an indexed weighted average LTV of 85.6%. Irish house prices have declined more than 30% from their peak, resulting in about 41% of the outstanding portfolio having an indexed LTV currently exceeding 100%.

Emerald 5 is performing outside of Moody's expectations as of closing. The collateral performance has deteriorated further since the transaction was placed under review in July 2009. Moody's observed a rapid increase in mortgage arrears, with 90d+ arrears increasing from 3.27% of pool balance in July 2009 to 5.67% as at May 2010. The 360d+ delinquent loans have more than doubled since the transaction was placed under review, rising from 0.69% of the outstanding balance as of July 2009 to 1.66% as of May 2010. Despite the rapid deterioration in total delinquencies, the transaction has experienced zero repossession as of the last payment date. The negligible level of repossessions to-date in the Irish mortgage market is associated to the lengthy foreclosure process in Ireland as well as to the moratorium on legal proceedings introduced in February 2009 by the Irish government.

REVISED LIFETIME LOSSES AND MILAN Aaa CE

Moody's has reassessed its lifetime loss expectation for Emerald 5 to account for the collateral performance to date as well as the current macroeconomic environment in Ireland. On the basis of the rapid deterioration in 90d+ arrears in the transaction, we have updated the portfolio expected loss assumption to 2.4% of original balance, up from 0.75% at closing.

As part of its analysis, Moody's has also assessed loan-by-loan information for the outstanding portfolio to determine the credit support consistent with target rating levels and the volatility of the distribution of future losses. For this review, "Moody's MILAN Methodology for Rating Irish RMBS" was used. As a result, Moody's has increased its MILAN Aaa credit enhancement (MILAN Aaa CE) assumptions from 7.58% to 10% for Emerald 5. The loss expectation 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. Current credit enhancement under Aaa-rated Class A notes (including subordination and reserve fund) is 10.3%. Credit enhancement for the notes is also provided by the swap margin, which is retained by Emerald 5 to a minimum of 115 bps.

DEAL STRUCTURE

Amortization of the notes: The senior notes and subordinated notes will continue to amortize sequentially throughout the life of the transaction.

Reserve Fund: The reserve fund was fully funded at closing to EUR 93.75m and currently represents 4.4% of current pool balance. Since March 2010, the reserve fund can amortize to 5% of outstanding bonds amount subject to a floor of EUR43.75m or 1.75% of original pool balance to the extent that deal performance triggers are met. The 1 month and 3 months arrears trigger tests are currently breached. The 30d+ and 90d+ arrears currently represent 9.03% and 5.67% of current pool balance respectively, well over their respective 6% and 3% trigger levels. Moody's believe that it is very unlikely that the reserve fund will amortize before the final maturity of the transaction.

Hedging agreements: The transaction benefits from an interest rate swaps provided by EBS Building Society (A2/P-1). The swap was amended in February 2010 so that Emerald 5 retains a minimum margin of 1.15 per cent irrespective of the prevailing underlying interest rates based on the notional amount of the notes outstanding. The swap documents are consistent with Moody's current swap criteria as described in Moody's report titled "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions" published in May 2007.

Liquidity Facility: The transaction is structured with a liquidity facility provided by EBS Building Society and equal to 2% of the outstanding notes amount.

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.

The principal methodologies used in monitoring this transaction is "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 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Please also refer to the "Irish RMBS Q2 2009 Indices", which is available on www.moodys.com in the Industry / Sector Research sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's web site. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our web site, at www.moodys.com/SFQuickCheck.

Paris
Annick Poulain
Managing Director
Structured Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Carole Bernard
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades the junior notes issued by Irish RMBS Emerald mortgages No.5 Limited
No Related Data.
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