Frankfurt am Main, February 18, 2021 -- Moody's Investors Service ("Moody's") has today
downgraded the ratings of two classes of notes in E-MAC Program
B.V. / Compartment NL 2007-NHG II:
....EUR600M Class A Notes, Downgraded
to Ba1 (sf); previously on Sep 19, 2018 Upgraded to Baa1 (sf)
....EUR7.2M Class B Notes, Downgraded
to Ca (sf); previously on Sep 19, 2018 Affirmed Caa2 (sf)
RATINGS RATIONALE
The rating action is prompted for both classes of notes by an erosion
of excess spread, 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. In addition, for Class
A, the rating action is also prompted by a deterioration in the
level of available credit enhancement, due to the gradual depletion
of the reserve fund.
Decrease in Available Credit Enhancement and Erosion of Excess Spread
Moody's has observed that over the past six 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 0.85% 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.
Following the First Put Date in July 2019, the Class B notes only
receive principal payments from two sources: (1) releases from the
reserve fund in case the balance in the reserve fund exceeds the target
balance; and (2) revenue funds remaining at the bottom of the interest
waterfall, after payment of inter alia swap subordinated amounts
and subordinated extension margins on the Class A and B notes.
Given the negative excess spread and the gradual depletion of the reserve
fund, it is unlikely that the Class B notes will receive principal
payments in the absence of a material increase in excess spread.
At the final maturity date the Class B notes will only receive principal
payment from the balance remaining in the reserve fund, after the
application of any amounts in the reserve fund to repay the Class A notes.
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.
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 0.41% of current
pool balance, up from 0.25% in January 2020.
However, since January 2017 cumulative losses have only marginally
increased by 0.01% of original pool balance, and currently
stand at 0.11% of original pool balance.
Moody's maintained the expected loss assumption at 0.20%
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.
Moody's has maintained the MILAN CE at 5%.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer assets from the
current weak Dutch economic activity and a gradual recovery for the coming
months. Although an economic recovery is underway, it is
tenuous and its continuation will be closely tied to containment of the
virus. As a result, the degree of uncertainty around our
forecasts is unusually high.
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 these ratings 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
ratings for RMBS securities 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 ratings:
Factors or circumstances that could lead to an upgrade of the ratings
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 ratings
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 ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are 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
