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Rating Action:

Moody's takes action on notes issued by RMAC 2004-NS1 and NSP2

14 Jun 2010

Approximately GBP 253 million of debt securities affected

London, 14 June 2010 -- Moody's Investors Service has today taken action on five classes of notes issued by RMAC 2004-NS1 plc and RMAC 2004-NSP2 plc (also "RMAC 2004-NS1" and "RMAC 2004-NSP2" respectively). The five affected tranches, listed below, were all on review due to their exposure to Ambac Financial Services LLC (NR) and Ambac Assurance Corporation (Caa2 on review for possible upgrade) acting as cross-currency swap provider and swap guarantor respectively. With today's rating actions, which conclude the review, Moody's has:

- upgraded the A3 notes in RMAC 2004-NS1 due to the expiry of the cross-currency swaps and the deleveraging of the structure;

- upgraded the A2 notes and downgraded the A3 notes in RMAC 2004-NSP2, taking into account the outstanding cross-currency swaps and the time subordination of the principal redemption of these two classes.

TRANSACTION OVERVIEW

RMAC 2004-NS1 closed in March 2004 and the current mortgage pool factor is approximately 10%. The assets supporting the notes are first-lien mortgage loans secured by residential properties located in England, Wales and Scotland. The weighted average LTV at closing was approximately 72.22% while the current weighted average LTV is approximately 69.88%. The overcollateralisation, which has reached its floor, equals GBP 3.75 million, corresponding to 5.31% of the outstanding note balance.

RMAC 2004-NSP2 closed in June 2004 and the current mortgage pool factor is approximately 13%. The assets supporting the notes are first-lien mortgage loans secured by residential properties located in England, Wales, Scotland and Northern Ireland. The weighted average LTV at closing was approximately 74.45% while the current weighted average LTV is approximately 74.08%. The overcollateralisation, which has reached its floor, equals to GBP 7.50 million, corresponding to 4.10% of the outstanding note balance.

TRANSACTION REVIEW

Today's rating actions incorporate the potential risks deriving from Ambac Financial Services LLC and Ambac Assurance Corporation acting as cross currency swap provider and swap guarantor respectively.

In RMAC 2004-NS1, in the interest payment date of March 2010 the A2 notes, which included US dollar-denominated and euro-denominated notes, have been completely repaid. Hence, the transaction is no longer exposed to the risks deriving from the credit quality of the cross-currency swap provider and guarantor. On the basis of the performance data to date, the portfolio is still performing in line with Moody's expectations. Hence, based on the increased levels of credit enhancement available in the structure and the expiry of the cross-currency swaps, Moody's has upgraded the Class A3 notes to A3.

In RMAC 2004-NSP2, on the basis of the performance data to date, the portfolio is still performing in line with expectations. However, the transaction is still linked to the credit quality of the cross-currency swap provider and guarantor, as the outstanding A2b and A2c notes are US dollar and euro denominated respectively. On the 13th of April 2009 the downgrade of Ambac Assurance Corporation to Ba3 had already resulted in certain rating related provisions being triggered under the relevant swaps. In particular each swap provides that, upon the downgrade of Ambac Assurance Corporation below Baa2, the swap provider has the obligation to use reasonable effort to transfer its rights and obligations under the swap to a suitable rated third party. Moody's is aware that the swap provider has not yet been able to find a replacement counterparty but we understand from The Bank of New York Mellon, which acts as trustee in the transaction, that in the meantime posting of collateral has taken place.

Furthermore, as noted in the press release dated 13th of February 2009, the swap documents for these transactions are not fully compliant with our current criteria for de-linking swap counterparty risks ("Moody's Framework") - see Moody's Report, "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions", May 2007. For example, although Ambac Assurance Corporation guarantees the payment obligations of the swap provider, in Moody's view it does not, in all circumstances, guarantee performance obligations such as the obligation to post collateral. In view of all this Moody's considers that, upon default of Ambac Assurance Corporation as swap guarantor, there is a material likelihood that the respective issuers would lose the benefit of the swaps without necessarily holding sufficient collateral to fully mitigate any resulting losses.

In order to address this risk, Moody's has assessed the potential exposure of the transaction to foreign exchange volatility in case of default of the cross-currency swap provider and guarantor, assuming that no swap replacement will be found. In particular, Moody's has taken into account that the current foreign exchange rates are significantly less favourable for the Issuer than those entered into at closing (approximately 1.829 for the GBP/USD and 1.514 for the GBP/EUR exchange rates respectively). As part of its analysis, Moody's has applied stressed foreign exchange assumptions for different rating levels to incorporate the future volatility this Issuer could potentially be exposed to. For example, for a single A-scenario Moody's assumes that the pound sterling exchange rate will decrease from the current levels and will reach the parity with the euro in approximately 6 months time.

Taking into account the current capital structure and the stressed foreign exchange assumptions mentioned above, Moody's has factored in the potential risk of exposure to foreign exchange volatility, which has lead to the downgrade of the rating of the A3 notes from Baa1 to Ba1. At the same time, Moody's has taken into consideration that, so long as the cash in the transaction is allocated according to the pre-enforcement waterfall, the principal of the A2 class will be paid in priority to the principal of the A3 notes. This provision, which makes the A2 notes significantly more protected then the A3 notes against foreign exchange volatility, and the deleveraging in the structure have driven the upgrade of the rating on the A2 notes.

LIST OF AFFECTED NOTES

The classes of notes affected by today's rating actions are detailed below.

RMAC 2004-NS1:

- Class A3, upgraded to A3; previously on 31 July 2009 Baa1 and placed under review for possible downgrade.

RMAC 2004-NSP2:

- Class A2a, upgraded to A2; previously on 31 July 2009 Baa1 and placed under review for possible downgrade;

- Class A2b, upgraded to A2; previously on 31 July 2009 Baa1 and placed under review for possible downgrade;

- Class A2c, upgraded to A2; previously on 31 July 2009 Baa1 and placed under review for possible downgrade;

- Class A3, downgraded to Ba1; previously on 31 July 2009 Baa1 and placed under review for possible downgrade.

Moody's has upgraded the Class A3 notes in RMAC 2004-NS1 and the Class A2 notes in RMAC 2004-NSP2 due to increased levels of credit enhancement available in the structure, and in RMAC 2004-NS1 also due to the expiry of the cross-currency swaps. In Moody's view, the increased levels of subordination more than offset the negative outlook for the overall UK non-conforming market. The sector outlook reflects the following expectations of key macro-economic indicators: GDP to grow by 1.2% in 2010 and by 2.2% in 2011, unemployment to increase to approximately 8% by 2010 from 7.6% in 2009, house prices to decrease by around 20% from their peak in 2007 to a trough in 2011 and personal insolvencies likely to remain elevated. For more detailed information please refer to Moody's Economy.com. Additionally, Moody's tested the sensitivity of the revised ratings to various stress scenarios including for example the amount of future losses, the MILAN Aaa CE and different distributions of losses over time.

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.

Moody's will continue to monitor closely the above transactions. The principal methodologies used in rating and/or monitoring these transactions were "Moody's Approach to Rating UK RMBS" published in April 2005, "Moody's Updated Methodology for Rating UK RMBS" published in November 2007 and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction" published in December 2008, as well as the Special Report "Interest Rate Risks in UK RMBS -- Moody's approach" published in October 2007 and the Rating Methodology report "Moody's Approach to Rating Multi-Currency CDOs" published in September 2005, available on www.moodys.com in the Rating Methodologies 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 website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

For further information, please visit our website www.moodys.com or contact Moody's Client Service Desk (+44 20) 7772 5454.

London
Barbara Rismondo
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Giacomo Bonetti
Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's takes action on notes issued by RMAC 2004-NS1 and NSP2
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