Approximately GBP 1.3 billion of debt securities affected.
London, 17 September 2009 -- Moody's Investors Service has today downgraded the ratings of:
- all the notes issued by Eurosail 2006-1 PLC (Eurosail
2006-1);
- all the notes issued by Eurosail 2006-2BL PLC (Eurosail
2006-2) , except Class B1a and Class B1b which were confirmed
at their current ratings;
- all the notes issued by Eurosail 2006-3NC PLC (Eurosail
2006-3), except Class A2b, Class A2c and Class A3c
DAC which were confirmed at their current ratings;
- all notes issued by Eurosail-UK 2007-1NC PLC (Eurosail
2007-1), except Class A3c DAC which was confirmed at Aaa.
All the affected tranches, listed at the end of this press release,
had been placed on review for possible downgrade on the 17 September 2008
because of their exposure to Lehman Brothers Holding Inc ("LBHI").
These notes were also on review for possible downgrade due to worse-than-expected
performance as detailed in a press release dated 26 June 2009 when Moody's
placed on review 13 UK Non-Conforming (NC) RMBS transactions and
commented on 14 other UK NC RMBS transactions. Today's rating actions
conclude the review and take into account increased loss expectations
for the four mortgage portfolios backing these transactions as well as
the exposure to LBHI or to entities ultimately owned by LBHI performing
servicing and cash management functions. Moody's notes that
the weak performance of these transactions is the main driver for today's
rating action.
TRANSACTION OVERVIEW
Eurosail 2006-1 closed in May 2006 and the current pool factor
is approximately 42%. The assets supporting the notes are
non-conforming mortgage loans secured by residential properties
located in England, Wales and Scotland, with approximately
6% of the outstanding portfolio represented by second lien loans.
The original weighted average LTV at closing was approximately 74%
while the current weighted average indexed LTV has increased to approximately
80%. As a result of the house price depreciation after closing,
approximately 11.5% of the outstanding portfolio is currently
characterized by an indexed LTV higher than 100%. The cumulative
losses realized since closing amount to 1.9% of the original
portfolio balance, with an average loss severity of 34.3%
reported for the quarter ended in June 2009. The reserve fund has
been drawn and it is currently equal to approximately 70% of its
target level corresponding to 0.83% of the current balance
of the notes.
Eurosail 2006-2 closed in October 2006 and the current pool factor
is approximately 52%. The assets supporting the notes are
near prime and non-conforming mortgage loans secured by residential
properties located in England, Wales, Scotland and Northern
Ireland, with approximately 0.5% of the outstanding
portfolio represented by second lien loans. The original weighted
average LTV at closing was approximately equal to 76% while the
current weighted average indexed LTV has increased to approximately 79%.
As a result of the house price depreciation after closing, approximately
6% of the outstanding portfolio is currently characterized by an
indexed LTV higher than 100%. The cumulative losses realized
since closing amount to 2% of the original portfolio balance,
with an average loss severity of 37.5% reported for the
quarter ended in June 2009. The reserve fund has been drawn and
it is currently equal to approximately 81% of its target level
corresponding to 0.15% of the current balance of the notes.
Eurosail 2006-3 closed in November 2006 and the current pool factor
is approximately 51%. The assets supporting the notes are
non-conforming mortgage loans secured by residential properties
located in England, Wales and Scotland, with approximately
15% of the outstanding portfolio represented by second lien loans.
The original weighted average LTV at closing was approximately equal to
71% while the current weighted average indexed LTV has increased
to approximately 80%. As a result of the house price depreciation
after closing, approximately 11.6% of the outstanding
portfolio is currently characterized by an indexed LTV higher than 100%.
The cumulative losses realized since closing amount to 1.5%
of the original portfolio balance, with an average loss severity
of 31.7% reported for the quarter ended in June 2009.
The reserve fund has been completely depleted and the transaction is currently
experiencing an unpaid PDL on the class E note of approximately GBP 2,605,987
Eurosail 2007-1 closed in February 2007 and the current pool factor
is approximately 63%. The assets supporting the notes are
non-conforming mortgage loans secured by residential properties
located in England, Wales, Scotland and Northern Ireland,
with approximately 13% of the outstanding portfolio represented
by second-lien loans. The original weighted average LTV
at closing was approximately equal to 73% while the current weighted
average indexed LTV has increased to approximately 82%.
As a result of the house price depreciation after closing, approximately
12.9% of the outstanding portfolio is currently characterized
by an indexed LTV higher than 100%. The cumulative losses
realized since closing amount to 1.6% of the original portfolio
balance, with an average loss severity of 35.3% reported
for the quarter ended in June 2009. The reserve fund has been completely
depleted and the transaction is currently experiencing an unpaid PDL on
the class E note of approximately GBP1.6 million.
REVISED PERFORMANCE EXPECTATIONS
Moody's has assessed updated loan-by-loan information of
the outstanding portfolios to determine the increase in credit support
needed and the volatility of future losses. As a consequence,
Moody's has revised its Milan Aaa CE for these transactions to 29%
for Eurosail 2006-1, 27% for Eurosail 2006-2,
33% for Eurosail 2006-3 and 30% for Eurosail 2007-1.
The current available credit enhancement (excluding excess spread) for
Class A2 notes in Eurosail 2006-1 and Eurosail 2006-2 is
equal to 27.8% and 27.3% respectively.
In Eurosail 2006-3 and Eurosail 2007-1, Class A2 and
A3 notes share the same PDL and their current available credit enhancement,
taking into account the unpaid PDL, equals to approximately 27.4%
and 22% respectively. The principal redemption within the
Class A notes is fully sequential, hence these classes are expected
to have significantly different average lives. In its cash flow
analysis of Eurosail 2006-3 and Eurosail 2007-1, Moody's
has taken into account the faster repayment of the Class A2 notes.
This has led to the confirmation of the current ratings of Class A2b and
Class A2c in Eurosail 2006-3 and to the difference in rating levels
between Class A2 and Class A3 in Eurosail 2007-1. Similarly,
Class A3c DAC for Eurosail 2006-3 and Eurosail 2007-1 were
confirmed at their current ratings taking into consideration their termination
dates falling on December 2009 and March 2010 respectively.
Considering the current amount of realized losses, and completing
a roll-rate and severity analysis for the non-defaulted
portion of the portfolio, Moody's has also increased its total loss
expectations to 6.5% of the original portfolio balance for
Eurosail 2006-1 and Eurosail 2006-2 (vs. 3.7%
and 3.1% previously assumed) and to 7.5% of
the original portfolio balance for Eurosail 2006-3 and Eurosail
2007-1(vs. 3.7% previously assumed for both
transactions).
The loss expectation and the Milan Aaa CE are the two key parameters used
by Moody's to calibrate the loss distribution curve, which is one
of the inputs into our RMBS cash-flow model. Moody's has
also factored into its analysis the negative sector outlook for UK non-conforming
RMBS. The sector outlook reflects the following expectations of
key macro-economic indicators: GDP to contract by 4.1%
in 2009, followed by growth of 0.9% in 2010,
unemployment to increase to 9.6% by 2010 from 7.8%
today, house prices to decrease by over 30% from their peak
in 2007 to a trough in 2010 and further increases in personal insolvencies.
For more detailed information please refer to Moody's Economy.com.
SWAPS, SERVICING AND CASH MANAGEMENT
Moody's notes that following the bankruptcy filing of LBHI, an event
of default has occurred in the swap agreements in place for the four transactions.
As of today only the fixed-floating and BBR swaps for Eurosail
2007-1 have been terminated, but no replacement swaps have
been entered into by the issuer. In our current rating review,
Moody's has assumed that the issuer will not enter into replacement swaps
and will be exposed to interest rate and basis risk until transaction
maturity.
The fixed-floating swaps for the other three transactions have
not been terminated. However, the residual interest rate
risk exposure is limited as fixed rate loans are reverting to floating
rate within December 2010, October 2009 and September 2009 for Eurosail
2006-1, Eurosail 2006-2 and Eurosail 2006-3
respectively. These three transactions are also exposed to some
unhedged basis risk due to the reset date mismatch between the Note Libor
and the Libor on the mortgage loans which is approximately a 10-15
day period. This risk had been previously sized by Moody's in the
latest review of the deals in May 2008 and is not the driver of today's
rating actions.
Some of the notes in the four transactions are denominated in EUR or USD
as detailed in the list below. The Issuers have entered into currency
swap agreements with Barclays Bank PLC to hedge the foreign exchange risk.
Finally, today's rating actions incorporate the potential
operational risks associated with Capstone Mortgage Services Ltd ("Capstone"),
performing the servicing and cash management functions in all four transactions.
Following a review of Capstone servicing operations, Moody's
is satisfied of the ability of the servicer to perform its duties considering
current resources, systems and procedures. Uncertainties
remain on the ownership structure and funding strategy of Capstone in
the future. Moody's considers the back-up cash management
arrangements in place with HML to be not sufficiently hot to ensure,
in Aaa-equivalent circumstance, a timely payment of principal
and interest on the notes and payments to the cross-currency swap
provider within the grace period. This consideration of this residual
operational risk has affected the ratings of the senior notes in the reviewed
transactions by approximately 1 notch.
LIST OF AFFECTED NOTES
Issuer: Eurosail 2006-1
- GBP321.2 million A2c notes, Downgraded to Aa1;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR20.7 million B1a notes, Downgraded to A1;
previously on 17 September 2008 Aa3 Placed Under Review for Possible Downgrade
- GBP17.5 million B1c notes, Downgraded to A1;
previously on 17 September 2008 Aa3 Placed Under Review for Possible Downgrade
- EUR13.6 million C1a notes, Downgraded to Ba2;
previously on 17 September 2008 Baa2 Placed Under Review for Possible
Downgrade
- GBP16.5 million C1c notes, Downgraded to Ba2;
previously on 17 September 2008 Baa2 Placed Under Review for Possible
Downgrade
- EUR26.4 million D1a notes, Downgraded to Caa3;
previously on 17 September 2008 Ba3 Placed Under Review for Possible Downgrade
- GBP3.0 million D1c notes, Downgraded to Caa3;
previously on 17 September 2008 Ba3 Placed Under Review for Possible Downgrade
- GBP4.8 million E notes, Downgraded to Ca; previously
on 17 September 2008 B3 Placed Under Review for Possible Downgrade
Issuer: Eurosail 2006-2BL PLC
- GBP269.0 million A2c notes, Downgraded to Aa1;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR27.0 million B1a notes, Confirmed at Aa3;
previously on 17 September 2008 Aa3 Placed Under Review for Possible Downgrade
- USD18.0 million B1b notes, Confirmed at Aa3;
previously on 17 September 2008 Aa3 Placed Under Review for Possible Downgrade
- EUR24.8 million C1a notes, Downgraded to Baa2;
previously on 17 September 2008 A3 Placed Under Review for Possible Downgrade
- GBP11.0 million C1c notes, Downgraded to Baa2;
previously on 17 September 2008 A3 Placed Under Review for Possible Downgrade
- EUR9.0 million D1a notes, Downgraded to Caa1;
previously on 17 September 2008 Ba1 Placed Under Review for Possible Downgrade
- GBP17.3 million D1c notes, Downgraded to Caa1;
previously on 17 September 2008 Ba1 Placed Under Review for Possible Downgrade
- GBP7.38 million E1c notes, Downgraded to Caa3;
previously on 17 September 2008 B3 Placed Under Review for Possible Downgrade
- GBP1.538 million F1c notes, Downgraded to Ca;
previously on 17 September 2008 Caa1 Placed Under Review for Possible
Downgrade
Issuer: Eurosail 2006-3NC PLC
- USD145.0 million A2b notes, Confirmed at Aaa;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- GBP35.25 million A2c notes, Confirmed at Aaa;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR128.0 million A3a notes, Downgraded to Aa2;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- GBP80.2 million A3c notes, Downgraded to Aa2;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- A3c DAC notes, Confirmed at Aaa; previously on 17
September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR48.8 million B1a notes, Downgraded to Baa1;
previously on 17 September 2008 Aa3 Placed Under Review for Possible Downgrade
- EUR20 million C1a notes, Downgraded to B3; previously
on 17 September 2008 Baa2 Placed Under Review for Possible Downgrade
- GBP9.85 million C1c notes, Downgraded to B3;
previously on 17 September 2008 Baa2 Placed Under Review for Possible
Downgrade
- EUR6.05 million D1a notes, Downgraded to Ca;
previously on 17 September 2008 B1 Placed Under Review for Possible Downgrade
- GBP11.0 million D1c notes, Downgraded to Ca;
previously on 17 September 2008 B1 Placed Under Review for Possible Downgrade
- GBP4.08 million E1c notes, Downgraded to C;
previously on 17 September 2008 B3 Placed Under Review for Possible Downgrade
Issuer: Eurosail-UK 2007-1NC PLC
- EUR152.5 million A2a notes, Downgraded to Aa1;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- GBP50.0 million A2c notes, Downgraded to Aa1;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR194.8 million A3a notes, Downgraded to Aa2;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- GBP100.0 million A3c notes, Downgraded to Aa2;
previously on 17 September 2008 Aaa Placed Under Review for Possible Downgrade
- A3c DAC notes, Confirmed at Aaa; previously on 17
September 2008 Aaa Placed Under Review for Possible Downgrade
- EUR36.9 million B1a notes, Downgraded to Baa2;
previously on 17 September 2008 Aa2 Remained On Review for Possible Downgrade
- GBP20.0 million B1c notes, Downgraded to Baa2;
previously on 17 September 2008 Aa2 Remained On Review for Possible Downgrade
- EUR42.1 million C1a notes, Downgraded to B2;
previously on 17 September 2008 A2 Remained On Review for Possible Downgrade
- EUR23.25 million D1a notes, Downgraded to Ca;
previously on 17 September 2008 Ba1 Remained On Review for Possible Downgrade
- GBP5.0 million D1c notes, Downgraded to Ca;
previously on 17 September 2008 Ba1 Remained On Review for Possible Downgrade
- GBP5.6 million E1c notes, Downgraded to C;
previously on 17 September 2008 Ba3 Remained On Review for Possible Downgrade
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.
Moody's initially analysed and monitors these transactions using the rating
methodology for EMEA RMBS as described in the Rating Methodology reports
"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. These reports can be found at 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.
Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
Moody's takes action on several UK NC RMBS notes issued by Eurosail
