London, 16 May 2014 -- Moody's Investors Service has today placed on review for downgrade the
ratings of 12 notes in six residential mortgage-backed securities
(RMBS) that have increased counterparty risk arising from their exposure
to Deutsche Bank AG acting as swap counterparty. At the same time,
Moody's affirmed the ratings of all the notes in HOLLAND MORTGAGE BACKED
SERIES (HERMES) XV B.V. that have not been placed on watch,
as well as all note ratings in Dutch MBS XVI B.V. and HOLLAND
MORTGAGE BACKED SERIES (HERMES) XII B.V.
The review follows the rating action taken on Deutsche Bank AG,
whose long term ratings were placed on review for downgrade on 6 May 2014
(https://www.moodys.com/research/-PR_298525).
See towards the end of the ratings rationale section of this press release
for a detailed list of affected ratings.
RATINGS RATIONALE
Today's rating announcement reflects the linkage between the ratings of
the affected notes and that of Deutsche Bank AG (further referred to in
the press release as Deutsche Bank) through its role as swap provider
in the transactions.
Moody's has placed on review for possible downgrade the ratings of Class
B note in HOLLAND MORTGAGE BACKED SERIES (HERMES) XV B.V.;
2 notes in Granite Master Issuer Plc Series 2006-2, 6 notes
in Granite Master Issuer Plc Series 2007-2; 1 note in Aire
Valley Mortgages 2006-1 Plc, 1 note in Holmes Master Issuer
Series 2012-1 and 1 note in Holmes Master Issuer 2012-4.
If the rating of Deutsche Bank is downgraded below A2, the probability
of the transactions becoming unhedged will increase sufficiently so as
to negatively affect the rating of these notes. The small size
of Class B in HOLLAND MORTGAGE BACKED SERIES (HERMES) XV B.V.
of only 0.8% of the total rated notes makes the ratings
sensitive to the loss in the event of the interest risk in the transaction
becoming unhedged. In Aire Valley Mortgages, Granite Master
Issuer and Holmes Master Issuer, given the uncertainty of transaction
documentation as to whether deal credit enhancement is available to cover
swap losses, Moody's has assessed these transactions using both
the scenarios where credit enhancement is available, and where swap
losses are allocated directly to the affected note. Moody's
notes that in the absence of deal credit enhancement, the increased
counterparty risk results in a high loss severity on these tranches that
are not consistent with the ratings currently assigned to the notes placed
on review for downgrade.
Moody's has also updated the performance assumptions in Dutch MBS
XVI B.V. due to worse than previously expected collateral
performance, with cumulative losses reaching 0.11%
of original portfolio balance. The Expected Loss assumption has
increased from 0.65% to 0.80% of original
portfolio balance. The MILAN CE has increased to 5.6%
from 5% previously assumed. This increase is mainly driven
by higher delinquency levels for a relatively smaller outstanding portfolio
compared to closing as well as by the recent decline in house prices in
the Netherlands. However, the note ratings of Dutch MBS XVI
B.V. remain unaffected by the increase in Expected Loss
and MILAN CE assumptions.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The potential downgrade of the affected securities is linked to the downgrade
of Deutsche Bank. As stated in the related press release on 6 May
2014, if a downgrade of Deutsche Bank did occur it would most likely
be limited to one notch. If Deutsche Bank is downgraded by more
than one notch more notes of the five RMBS transactions referenced above
may be impacted.
Factors or circumstances that could lead to a downgrade of the ratings
affected by today's action would be the worse-than-expected
performance of the underlying collateral and deterioration in the credit
quality of the counterparties.
Factors or circumstances that could lead to an upgrade of the ratings
affected by today's action would be the better-than-expected
performance of the underlying assets, and a decline in counterparty
risk.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in March 2014.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
LIST OF AFFECTED RATINGS:
Issuer: Dutch MBS XVI B.V.
....EUR221.2M Class A1 Notes,
Affirmed Aaa (sf); previously on Jun 9, 2011 Definitive Rating
Assigned Aaa (sf)
....EUR484.4M Class A2 Notes,
Affirmed Aaa (sf); previously on Jun 9, 2011 Definitive Rating
Assigned Aaa (sf)
....EUR11.7M Class B Notes, Affirmed
Aa1 (sf); previously on Jun 9, 2011 Definitive Rating Assigned
Aa1 (sf)
....EUR11.2M Class C Notes, Affirmed
Aa2 (sf); previously on Jun 9, 2011 Definitive Rating Assigned
Aa2 (sf)
....EUR9.2M Class D Notes, Affirmed
A1 (sf); previously on Jun 9, 2011 Definitive Rating Assigned
A1 (sf)
....EUR12.3M Class E Notes, Affirmed
Ba1 (sf); previously on Jun 9, 2011 Definitive Rating Assigned
Ba1 (sf)
Issuer: HOLLAND MORTGAGE BACKED SERIES (HERMES) XII B.V.
....EUR2095.5M Class A Notes,
Affirmed Aaa (sf); previously on Jan 29, 2014 Affirmed Aaa
(sf)
....EUR44M Class B Notes, Affirmed Aa2
(sf); previously on Jan 29, 2014 Confirmed at Aa2 (sf)
....EUR31.9M Class C Notes, Affirmed
A2 (sf); previously on Jan 29, 2014 Confirmed at A2 (sf)
....EUR28.6M Class D Notes, Affirmed
Baa3 (sf); previously on Jan 29, 2014 Affirmed Baa3 (sf)
....EUR40.7M Class E Notes, Affirmed
Ba3 (sf); previously on Jan 29, 2014 Affirmed Ba3 (sf)
Issuer: HOLLAND MORTGAGE BACKED SERIES (HERMES) XV B.V.
....EUR1500M Class A (new notes) Notes,
Affirmed Aaa (sf); previously on Jun 18, 2010 Assigned Aaa
(sf)
....EUR9.75M B Notes, Aa1 (sf)
Placed Under Review for Possible Downgrade; previously on Jun 18,
2010 Upgraded to Aa1 (sf)
....EUR43.65M Class C Notes,
Affirmed Aa2 (sf); previously on Jun 18, 2010 Upgraded to Aa2
(sf)
....EUR38.65M Class D Notes,
Affirmed Baa1 (sf); previously on Oct 3, 2013 Downgraded to
Baa1 (sf)
....EUR26.1M Class E Notes, Affirmed
B2 (sf); previously on Oct 3, 2013 Downgraded to B2 (sf)
Issuer: Aire Valley Mortgages 2006-1 plc
....EUR854M Class Series 2 A1 Notes,
Aa2 (sf) Placed Under Review for Possible Downgrade; previously on
Feb 18, 2014 Downgraded to Aa2 (sf)
Issuer: Granite Master Issuer plc Series 2006-2
....US$36M Class B2 Notes, Aa2
(sf) Placed Under Review for Possible Downgrade; previously on Feb
18, 2014 Upgraded to Aa2 (sf)
....US$25M Class M2 Notes, Aa2
(sf) Placed Under Review for Possible Downgrade; previously on Feb
18, 2014 Upgraded to Aa2 (sf)
Issuer: Granite Master Issuer plc Series 2007-2
....US$66.5M Class 1B1 Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
Feb 18, 2014 Upgraded to Aaa (sf)
....US$1025M Class 2A1 Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
Feb 18, 2014 Affirmed Aaa (sf)
....CAD500M Class 2A2 Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on Feb 18,
2014 Affirmed Aaa (sf)
....US$53.5M Class 2B1 Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
Feb 18, 2014 Upgraded to Aaa (sf)
....US$1100M Class 3A1 Notes,
Aaa (sf) Placed Under Review for Possible Downgrade; previously on
Feb 18, 2014 Affirmed Aaa (sf)
....US$35M Class 3B1 Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on Feb
18, 2014 Upgraded to Aaa (sf)
Issuer: Holmes Master Issuer Series 2012-1
....US$500M Class A2 Notes, Aaa
(sf) Placed Under Review for Possible Downgrade; previously on May
30, 2013 Affirmed Aaa (sf)
Issuer: Holmes Master Issuer Series 2012-4
....EUR650M Class A Notes, Aaa (sf)
Placed Under Review for Possible Downgrade; previously on May 30,
2013 Affirmed Aaa (sf)
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.
The person who approved Dutch MBS XVI B.V., HOLLAND
MORTGAGE BACKED SERIES (HERMES) XII B.V. and HOLLAND MORTGAGE
BACKED SERIES (HERMES) XV B.V. credit ratings is Anthony
Parry, VP - Senior Credit Officer, Structured Finance
Group, Journalists Tel 44 20 7772 5456, Subscribers Tel 44
20 7772 5454.
The person who approved Holmes Master Issuer Series 2012-1,
Holmes Master Issuer Series 2012-4, Granite Master Issuer
plc Series 2006-2, Aire Valley Mortgages 2006-1 plc
and Granite Master Issuer plc Series 2007-2 credit ratings is Annabel
Schaafsma, Associate Managing Director, Structured Finance
Group, Journalists Tel 44 20 7772 5456, Subscribers Tel 44
20 7772 5454.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Maria Divid
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
Emily Rombeau
Associate Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Steven Becker
Associate Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Anthony Parry
VP - Senior Credit Officer
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 reviews for downgrade 12 notes in 6 European RMBS transactions with exposure to Deutsche Bank as swap counterparty
