London, 13 April 2018 -- Moody's Investors Service ("Moody's") has today downgraded the ratings
of two Notes in Paragon Mortgages (No.9) PLC ("Paragon 9")
and confirmed the ratings of two Notes in RMAC SECURITIES No. 1
PLC Series 2006-NS1. Moody's affirmed the ratings
of three Notes in Paragon 9 and of five Notes in RMAC SECURITIES No.
1 PLC Series 2006-NS1, which had sufficient credit enhancement
to maintain the current rating of the affected Notes. Moody's has
also upgraded the ratings of five Notes in CELTIC RESIDENTIAL IRISH MORTGAGE
SECURITISATION NO. 14 and 15 LTD ("Celtic transactions")
and the ratings of two Notes and one Counterparty Instrument Rating (CIR)
in Paragon 9.
Today's downgrades primarily reflect the downgrade of the long-term
counterparty risk assessment ("CR Assessment") of The Royal
Bank of Scotland plc (RBS plc) which acts as swap counterparty for Paragon
9. Today's confirmations of the ratings of two Notes in RMAC
SECURITIES No. 1 PLC Series 2006-NS1 reflect Moody's anticipation
that remedial actions are to be taken following the downgrade of the long-term
senior unsecured debt ratings of The Royal Bank of Scotland plc as well
as the assessment that the level of credit enhancement, is sufficient
to confirm the ratings of the affected Notes. Today's upgrades
reflect the upgrade of the long term deposit rating of Ulster Bank Ireland
DAC which acts as issuer account bank in the Celtic transactions and a
decreased key collateral assumption as well as the increase in the levels
of credit enhancement for the affected Notes in Paragon 9.
Today's rating action concludes the review for downgrade of two
Notes in Paragon 9 and two Notes in RMAC SECURITIES No. 1 PLC Series
2006-NS1 and the review for upgrade of three Notes in Paragon 9,
which were initiated on 20 February 2018 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_379484).
This action also concludes the review for upgrade of five Notes in the
Celtic transactions which was initiated on 8 February 2018 (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_379251).
Issuer: Paragon Mortgages (No. 9) PLC
....GBP346M Class Aa Notes, Affirmed
Aa1 (sf); previously on Jun 27, 2017 Affirmed Aa1 (sf)
....EUR355M Class Ab Notes, Affirmed
Aa1 (sf); previously on Jun 27, 2017 Affirmed Aa1 (sf)
....USD60M Class Ac Notes, Affirmed
Aa1 (sf); previously on Jun 27, 2017 Affirmed Aa1 (sf)
....GBP7M Class Ba Notes, Downgraded
to A1 (sf); previously on Feb 20, 2018 Aa3 (sf) Placed Under
Review for Possible Downgrade
....EUR29.5M Class Bb Notes,
Downgraded to A1 (sf); previously on Feb 20, 2018 Aa3 (sf)
Placed Under Review for Possible Downgrade
....GBP3M Class Ca Notes, Upgraded to
A2 (sf); previously on Feb 20, 2018 A3 (sf) Placed Under Review
for Possible Upgrade
....EUR66M Class Cb Notes, Upgraded
to A2 (sf); previously on Feb 20, 2018 A3 (sf) Placed Under
Review for Possible Upgrade
....Cross Currency Swap for Class Cb Notes,
Upgraded to A1 (sf); previously on Feb 20, 2018 A3 (sf) Placed
Under Review for Possible Upgrade
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO.
14 LTD
....EUR1000M Class A2 Notes, Upgraded
to Aa1 (sf); previously on Feb 8, 2018 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
....EUR1000M Class A3 Notes, Upgraded
to Aa1 (sf); previously on Feb 8, 2018 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
Issuer: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO.
15 LTD
....EUR700M Class A1 Notes, Upgraded
to Aa1 (sf); previously on Feb 8, 2018 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
....EUR700M Class A2 Notes, Upgraded
to Aa1 (sf); previously on Feb 8, 2018 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
....EUR700M Class A3 Notes, Upgraded
to Aa1 (sf); previously on Feb 8, 2018 Upgraded to Aa2 (sf)
and Placed Under Review for Possible Upgrade
Issuer: RMAC SECURITIES No. 1 PLC Series 2006-NS1
....GBP385M Class A2a Notes, Affirmed
Aa1 (sf); previously on Jul 27, 2017 Upgraded to Aa1 (sf)
....EUR400M Class A2c Notes, Affirmed
Aa1 (sf); previously on Jul 27, 2017 Upgraded to Aa1 (sf)
....EUR60.5M Class B1c Notes,
Affirmed A3 (sf); previously on Jun 27, 2017 Affirmed A3 (sf)
....GBP30M Class M1a Notes, Confirmed
at Aa1 (sf); previously on Feb 20, 2018 Aa1 (sf) Placed Under
Review for Possible Downgrade
....EUR59M Class M1c Notes, Confirmed
at Aa1 (sf); previously on Feb 20, 2018 Aa1 (sf) Placed Under
Review for Possible Downgrade
....GBP23.25M Class M2a Notes,
Affirmed Aa3 (sf); previously on Jun 27, 2017 Upgraded to Aa3
(sf)
....EUR20M Class M2c Notes, Affirmed
Aa3 (sf); previously on Jun 27, 2017 Upgraded to Aa3 (sf)
RATINGS RATIONALE
Today's actions reflect (1) the downgrade of the long-term CR Assessment
of RBS plc acting as swap counterparty in Paragon 9, (2) the upgrade
of the long-term deposit rating of Ulster Bank Ireland DAC which
acts as issuer account bank in in the Celtic transactions; and (3)
deal deleveraging resulting in an increase in credit enhancement and decrease
in key collateral assumption for the affected tranches in Paragon 9.
-- Swap Counterparty Risks
On 4 April 2018, Moody's downgraded the long-term CR
Assessments of RBS plc and Royal Bank of Scotland N.V.,
London Branch (RBS NV) to A3 (cr) (from A2(cr), on review for downgrade).
At the same time, Moody's downgraded the long-term
senior unsecured debt ratings of RBS plc and RBS NV to Baa2 (from A3,
on review for downgrade). In light of these downgrades, Moody's
reassessed the exposure to RBS NV and RBS plc as swap counterparty in
our rated transactions.
RBS plc acts as swap provider to Paragon 9 and RMAC SECURITIES No.
1 PLC Series 2006-NS1.
Moody's determines the probability of a transaction becoming unhedged
as a function of (i) the CR Assessment of the swap counterparty and (ii)
the value of any rating triggers that require the counterparty to take
remedial action upon it being downgraded below a certain rating threshold.
Moody's concluded that, by reason of the downgrade of RBS
plc's CR Assessment, the ratings of classes Ba, Bb,
Ca and Cb in Paragon 9 are constrained by swap counterparty exposure.
As a result, Moody's downgraded the ratings of classes Ba
and Bb and the upgrade of the ratings of classes Ca and Cb was limited.
In respect of classes M1a, M1c, M2a, and M2c issued
by RMAC SECURITIES No. 1 PLC Series 2006-NS1, Moody's
concluded that the 4 April 2018 downgrade of RBS plc's CR Assessment
has not increased the magnitude of the pre-existing rating constraint
attributable to swap counterparty exposure and, therefore,
has not taken any rating actions in relation to the downgrade.
The recent rating downgrade of RBS plc resulted in rating trigger breaches
under the swaps provided to Paragon 9 and RMAC SECURITIES No. 1
PLC Series 2006-NS1. In each case, the swap agreement
contemplates several alternative remedial actions to be taken by the counterparty,
which are broadly: (a) transferring the swap to an appropriately
rated third party, (b) obtaining a guarantee by an appropriately
rated guarantor, or (c) taking some other action such that the downgrade
of RBS does not have a negative rating impact on the Notes. We
currently assume that RBS plc will take remedial action in accordance
with the respective swap agreements. However, we will monitor
this assumption and, if we cease to believe (with sufficient confidence)
that remedial action will be taken, we will re-evaluate the
probability that the relevant transaction(s) will become unhedged,
which may result in further rating actions.
-- Account Bank Risk
Moody's assesses the default probability of the transactions'
account bank providers by referencing the bank's deposit rating.
The long term deposit rating of Ulster Bank Ireland DAC was upgraded from
Baa2 to Baa1 on 4 April 2018. The ratings of the Notes in the Celtic
transactions are constrained by the issuer account bank exposures.
As a result, Moody's upgraded all five Notes.
-- Revision of Key Collateral Assumptions
Moody's has not reassessed its lifetime loss expectation nor its MILAN
CE assumption for the transactions as part of this rating action.
However, Moody's decreased the MILAN CE assumption from 14%
to 12% for Paragon 9 effective 20 February 2018. Moody's
has factored this in its analysis to conclude the review for upgrade of
classes Ca, Cb and Cross Currency Swap for class Cb initiated on
20 February 2018.
-- Increase in Available Credit Enhancement
In Paragon 9, the pro-rata amortization after the step-up
date (May 2010) led to the increase in the credit enhancement available
for classes Ca and class Cb Notes to 5.4% in February 2018
from 1.8% at closing date. This is factored in our
upgrade of the ratings of classes Ca and Cb.
-- Counterparty Instrument Rating (CIR)
Our approach to assigning CIRs on cross currency swaps involves two steps.
First, we calculate the expected loss on the hypothesis that the
counterparty will not default, and convert this to a rating using
our idealized cumulative expected default and loss rates. Second,
we assess the degree of linkage to the swap counterparty and, where
appropriate, cap the CIR accordingly.
The expected loss for the counterparty will usually match that of the
pari passu-ranking Notes without considering the linkage to the
swap counterparty; in this case, Class Cb.
The second step, counterparty linkage analysis, determines
whether the rating from the first step should be further adjusted due
to linkage to the counterparty itself. The analysis incorporates
a probability uplift and a severity modifier. Moody's now gives
a 3-notch probability uplift. Probability uplift assesses
whether the swap will be transferred to a different counterparty before
current counterparty defaults as well as the likelihood of the swap being
out-the-money at counterparty default. Severity modifier
represents the potential degree of loss to the counterparty resulting
from a subordinated termination payment.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in September 2017.
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) 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) 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.
Credit Rating: A Credit Rating is an opinion from Moody's Investors
Service (MIS) regarding the creditworthiness of an entity, a debt
or financial obligation, debt security, preferred share or
other financial instrument, or of an issuer of such a debt or financial
obligation, debt security, preferred share or other financial
instrument, issued using an established and defined ranking system
of rating categories.
Rating Review: A rating review indicates that a rating is under
consideration for a change in the near term. A rating can be placed
on review for upgrade (UPG), downgrade (DNG), or more rarely
with direction uncertain (UNC). A review may end with a rating
being upgraded, downgraded, or confirmed without a change
to the rating. Ratings on review are said to be on Moody's "Watchlist"
or "On Watch".
For further information on these definitions or on Moody's ratings symbols,
please consult the Rating Symbols and Definitions document on www.moodys.com
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.
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 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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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 rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Germain-Pierre Fargue
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Michelangelo Margaria
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Gaby Trinkaus
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Maria Turbica Manrique
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Lam Tran Ngoc
Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
