London, 14 October 2015 -- Moody's Investors Service has today taken rating actions on non-conforming
residential mortgage-backed securities (RMBS) transactions in the
UK.
Specifically, Moody's has upgraded 184 notes and placed on review
for upgrade 22 notes across 64 UK non-conforming RMBS transactions.
Please click on the following link to access the full list of affected
credit ratings. This list is an integral part of this press release
and identifies each affected issuer: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF419325.
RATINGS RATIONALE
Today's rating actions reflect (1) the improvement of key collateral assumptions
and reduced uncertainty of this seasoned portfolio, and (2) deleveraging
of the transactions.
--- CHANGES IN KEY COLLATERAL ASSUMPTIONS
Our collateral performance outlook for UK non-conforming RMBS remains
positive on the back of the broad-based recovery in the UK economy.
The recent favorable economic conditions (low interest rates, higher
GDP growth and lower unemployment levels) have benefitted non-conforming
borrowers, who we believe will be able to manage the impact of gradually
rising interest rates such that overall collateral quality in the deal
pools will not suffer.
We reduced our lifetime loss expectations and/or MILAN CE assumptions
in 43 deals based on strong performance and benchmarking considerations.
Due to the reduced uncertainty in the sector, we have removed the
additional stress analysis of key collateral assumptions.
--- DELEVERAGING OF TRANSACTIONS
Repayment of principal collections has contributed to increase credit
enhancement. In addition increased excess spread has contributed
to replenish reserve fund in some cases. Indeed in some transactions,
excess spread has increased as liquidity facility standby drawings,
which generated an additional fee to be covered by excess spread,
have now been reversed.
Operational risk remains prevalent in the sector as a majority of notes
remain capped due to the combination of lowly or non-rated servicers
and insufficient servicer and/or cash manager back-up arrangements.
--- ANTICIPATED COMPLETION OF THE PLACEMENTS ON REVIEW
Moody's expects to conclude the majority of the rating reviews in the
fourth quarter of 2015.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in January 2015.
Please see the Credit Policy 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
are (1) performance of the underlying collateral that exceeds Moody's
expectations; (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
are (1) an increased probability of high-loss scenarios owing to
a downgrade of the country ceiling; (2) performance of the underlying
collateral that does not meet Moody's expectations; (3) deterioration
in the notes' available CE; and (4) deterioration in the credit quality
of the transaction counterparties.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF419325
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
- Lead analyst
- Key Rationale for Action
- Person Approving the Credit Rating
- Releasing office
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 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.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
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.
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.
Christophe Larpin
Vice President - Senior 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
Gaby Trinkaus
AVP - Analyst
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 takes actions on multiple UK RMBS Non-Conforming notes' ratings
