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Rating Action:

Moody's places on review for upgrade 30 tranches in 13 UK non-conforming RMBS transactions

16 Apr 2014

London, 16 April 2014 -- Moody's Investors Service has today placed on review for upgrade 30 tranches in 13 UK non-conforming residential mortgage securities (RMBS) transactions. Better than expected collateral performance and an increase in available credit enhancement drove today's rating action.

Please click here http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF364723 for the list of affected credit ratings and methodologies used. The list is an integral part of this press release.

RATINGS RATIONALE

Today's review for upgrade reflects (1) better than expected collateral performance in five transactions, and/or (2) an increase in available credit enhancement in all 13 affected transactions.

--- Collateral performance

In five transactions (Mansard Mortgages 2006-1 PLC, Preferred Residential Securities 7 PLC, Southern Pacific Securities 04-1 plc, Southern Pacific Securities 05-1 plc and Southern Pacific Securities 06-1 plc) collateral performance has been better than the rating agency expected during the previous rating action. Actual loss realisation has been below Moody's projections in all five affected deals, while the share of loans delinquent by more than 90 days (including outstanding repossessions) decreased substantially in Mansard Mortgages 2006-1 PLC, Southern Pacific Securities 05-1 plc and Southern Pacific Securities 06-1 plc. During the review Moody's will assess updated loan-by-loan information, consider the current amount of realised losses and complete roll-rate analysis for the non-defaulted portion of the portfolio to revise its collateral performance assumptions.

In the remaining eight transactions, the collateral performance has been in line with Moody's expectations.

--- Increase in available credit enhancement

The affected tranches benefited from substantial increase in available credit enhancement since the last rating action. The increase is driven by either (1) deleveraging, or a combination of deleveraging with (2) excess spread capture.

(1) All affected tranches benefit from increased credit enhancement due to non-amortising reserve funds either from closing, or following cumulative loss trigger breaches. Sequential amortisations since the last rating action further increased credit enhancement available to mezzanine and senior tranches. As of March 2014, only Mansard Mortgages 2007-1 PLC is amortising pro-rata while the other affected transactions are amortising sequentially.

(2) Excess spread capture resulted in a further increase of available credit enhancement in nine affected transactions in addition to the deleveraging. In seven deals (Bluestone Securities plc - Series 2007-1, Eurosail 2006-1, Mansard Mortgages 2007-1 PLC, Newgate Funding PLC: Series 2006-1, Newgate Funding PLC: Series 2006-2, Preferred Residential Securities 05-1 PLC and Southern Pacific Securities 06-1 plc) reserve funds were not fully funded as of the latest rating action. The reserve funds in these deals are currently fully funded due to the excess spread capture. In two deals, (Mansard Mortgages 2006-1 PLC and Marble Arch Residential Securitisation No. 4 plc) high cumulative losses resulted in a fully depleted reserve fund and an unpaid balance in the principal deficiency ledger. These unpaid balances have since been covered through excess spread capture while the reserve fund is fully funded in Marble Arch Residential Securitisation No. 4 plc and 64% funded in Mansard Mortgages 2006-1 PLC.

Moody's also notes that the standby liquidity facility drawdown fees of those transaction, if any, did not offset the beneficial impact of improved collateral performance and/or increased credit enhancement. Standby liquidity facility drawing fees are a feature present in many UK non-conforming transactions, which reduces available excess spread as such fees are not amortising in line with the pool balance.

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) a better than expected performance of the underlying collateral (2) deleveraging of the capital structure 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) a worse than expected performance of the underlying collateral (2) deterioration in the notes' available credit enhancement and (3) 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 of the disclosure form.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of these transactions in the past six months.

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.

As the section on loss and cash flow analysis describes, 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Lyudmila Udot
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Christophe de Noaillat
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places on review for upgrade 30 tranches in 13 UK non-conforming RMBS transactions
No Related Data.
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