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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
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
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.
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.
Structured Finance Group
Moody's France S.A.
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
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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