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16 Sep 2008
Moody's updates on Aire Valley Master Trust following the downgrade of Bradford & Bingley plc
London, 16 September 2008 -- On 16 September 2008, Moody's downgraded Bradford & Bingley
plc to Baa3/Prime-3 from Baa1/Prime-2. This action
has implications on the Aire Valley Master Trust and Bradford & Bingley's
role as counterparty to the trust companies.
As a result of the previous downgrade to Baa1 on 4 July 2008, Bradford
& Bingley does not meet the Second Trigger Required Ratings (which
are A3/Prime-2) under the interest rate swap that they provide
to Funding 1 of the Aire Valley trust. In accordance with the terms
of the programme, Bradford & Bingley are required to use commercially
reasonable efforts to, as soon as reasonably practicable,
either (i) transfer the swap to a replacement counterparty with the required
ratings or (ii) obtain a guarantee of its obligations under the swap from
a guarantor with the required ratings. It is Moody's understanding
that Bradford & Bingley is currently in the documentation process
with third parties in order to find a solution that meets the requirements
of the swap documentation described above. Following the breach
of the Second Trigger Required Ratings in July, Bradford & Bingley
posted an increased amount of cash collateral for their exposure under
the interest rate swaps with Funding 1 of the Aire Valley Master Trust.
The required amounts, calculated by Bradford & Bingley,
cover the current mark-to-market value and contain an additional
collateral amount to cover future changes in the mark-to-market
value for the swap exposure in accordance with Moody's published swap
In addition to the consequences of the earlier trigger breaches,
the most recent downgrade results in a breach of the Prime-2 trigger
that stops future additions of mortgages to the Aire Valley trust.
Furthermore, the Funding companies cannot further increase their
share in the mortgage trust, which means that no further issuance
out of the trust can be done at Bradford & Bingley's current
rating level without a prior waiver of this condition by the trustee.
Another consequence of the loss of Prime-2 is that the Bradford
& Bingley will have to ensure that the customer files and title deeds
related to loans that were assigned to the Aire Valley trust are identifiable
as distinct from other loans.
Moody's notes that in case of a further deterioration of Bradford
& Bingley's credit quality additional risk might be introduced
to the Aire Valley trust via Bradford & Bingley's role as servicer
and cash manager and that this could cause adverse consequences for the
transactions issued out of the trust.
With regard to the trust, the performance remains in line with Moody's
expectations, although as disclosed in the investor report for July
2008, delinquencies over 90 days have increased to 1.6%
of the portfolio balance from 0.92% in December 2007,
1.33% in March 2008 and 1.46% in June 2008.
Losses for the latest reporting period have been GBP 0.7 million.
Moody's initially analysed the Aire Valley trust --
and continues to monitor it -- using the rating methodology
for UK RMBS Master Trust transactions 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
"Moody's RMBS Master Trust Cash Flow Analysis",
published in April 2008. The last rating action on the Aire Valley
trust was taken on 23 July 2008, when Moody's assigned definitive
ratings to the notes issued by Aire Valley Mortgages 2008-1 and
affirmed the outstanding notes of previous issuers.
Moody's will continue to closely monitor the performance of the Aire Valley
Master Trust and the actions that might be taken in order to mitigate
the impact of Bradford & Bingley's lower ratings on the credit risk
of the rated notes issued out of the Aire Valley Master Trust.
Bradford & Bingley's currently retains the role as a swap counterparty,
cash manager and servicer for the transaction.
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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