London, 24 July 2014 -- Moody's Investors Service, ("Moody's"),
has today upgraded the ratings of 11 notes and confirmed the rating of
1 note in 4 Irish residential mortgage-backed securities (RMBS)
transactions, Fastnet Securities 2 Plc ("Fastnet 2"),
Fastnet Securities 3 Ltd ("Fastnet 3"), Fastnet Securities
6 Ltd ("Fastnet 6") and Fastnet Securities 7 Ltd ("Fastnet
7").
Today's rating actions follow the upgrade of the Irish sovereign rating
to Baa1 from Baa3 on 16 May 2014 and the resulting increase of the local-currency
country ceiling to Aa3 from A2 (https://www.moodys.com/research/PR_299549)
which reflects the country's reduced economic, legal and political
risks. The rating action also concludes the review of the notes
which were placed on review for upgrade in January 2014, following
the first upgrade of the Irish sovereign rating this year to Baa3 on 17
January 2014.
Please refer to the end of the Ratings Rationale section for a detailed
list of affected ratings.
RATINGS RATIONALE
Today's rating actions are driven by (1) the increase in the maximum
achievable rating of the Irish local-currency country ceiling to
Aa3; (2) the recovery in the Irish housing market; (3) the stabilizing
performance in the underlying collateral.
-- Reduced Sovereign Risk/Increased Country Ceiling
The Irish sovereign rating was upgraded to Baa1 in May 2014, which
resulted in an increase in the local-currency country ceiling to
Aa3. Therefore, the maximum rating that Moody's will assign
to a domestic Irish issuer including structured finance transactions backed
by Irish receivables is now Aa3 (sf).
-- Recovery in Irish Housing Market and Stabilizing Collateral
Performance
The recovery in the Irish housing market reduces loan to value ratios,
the number of loans in negative equity and the severity of potential losses
from underlying mortgage loans in the transactions. Consequently,
Moody's reduced Individual Loan Analysis Credit Enhancement (MILAN
CE) to 21%, 39%, 40% and 48% for
Fastnet 2, Fastnet 3, Fastnet 6 and Fastnet 7 respectively.
MILAN CE represents the required credit enhancement for the senior tranche
to achieve the country ceiling rating.
The performance from the underlying mortgage loans has also stabilized.
The total balance of loans in 360-day plus arrears as a percentage
of current total loan balance over the past 12 months has leveled at 11%,
12.7%, 14.1% and 20% for Fastnet
2, Fastnet 3, Fastnet 6 and Fastnet 7 respectively.
At the same time, the loans in 90-day plus arrears as a percentage
of current total loan balance has decreased in all transactions.
As a result, Moody's has reduced the lifetime loss expectations
as a percentage of original pool balance to 3.5% in Fastnet
2, to 11.0% in Fastnet 3, to 11.5%
in Fastnet 6 and to 15.0% in Fastnet 7.
Moody's also reviewed the performance of Fastnet Securities 5 Ltd
("Fastnet 5") and found the same trend in its collateral performance.
The expected loss and MILAN CE assumptions for Fasnet 5 are also reduced
to 5% and 23% respectively.
-- Available Credit Enhancement
Following a restructuring process in 2011, the credit enhancement
available to Class A notes in Fastnet 3, 6 and 7 increased significantly.
The current credit enhancement including reserve fund available to the
Class A notes is 37.0% in Fastnet 3, 38.2%
in Fastnet 6 and 48.5% in Fastnet 7. The higher credit
enhancement available in Fastnet 7 has resulted in a more significant
upgrade following the reduction in sovereign risk and loss expectations.
Fastnet 2, without restructuring, has materially lower credit
enhancement for the Class A notes at 16.5% restricting the
upgrade potential. Furthermore, the reserve fund in Fastnet
2 has also been slightly drawn recently.
Overall, the increased country ceiling and the reduced expected
loss and MILAN CE assumptions result in upgrades on all rated notes in
all 4 transactions except Class D in Fastnet 2. Class D has 6.45%
credit enhancement from the reserve fund. Moody's considers
the credit enhancement available to Class D insufficient for a rating
upgrade.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to a downgrade of the ratings
affected by today's action would be the worse-than-expected
performance of the underlying collateral, deterioration in the credit
quality of the counterparties and an increase in sovereign risk.
Factors or circumstances that could lead to an upgrade of the ratings
affected by today's action would be the better-than-expected
performance of the underlying assets, and a decline in both counterparty
and sovereign risk.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in March 2014.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
LIST OF AFFECTED RATINGS:
Issuer: Fastnet Securities 2 Plc
....EUR 1656M Class A2 Notes, Upgraded
to Ba1 (sf); previously on Jan 24, 2014 Ba2 (sf) Placed Under
Review for Possible Upgrade
....EUR 50M Class B Notes, Upgraded
to B3 (sf); previously on Jan 24, 2014 Caa2 (sf) Placed Under
Review for Possible Upgrade
....EUR 44M Class C Notes, Upgraded
to Caa1 (sf); previously on Jan 24, 2014 Ca (sf) Placed Under
Review for Possible Upgrade
....EUR 56M Class D Notes, Confirmed
at Ca (sf); previously on Jan 24, 2014 Ca (sf) Placed Under
Review for Possible Upgrade
Issuer: Fastnet Securities 3 Ltd
....EUR 1920M Class A1 Notes, Upgraded
to A2 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed Under
Review for Possible Upgrade
....EUR 5040M Class A2 Notes, Upgraded
to A2 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed Under
Review for Possible Upgrade
Issuer: Fastnet Securities 6 Ltd
....EUR 561.6M Class A1 Notes,
Upgraded to A2 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed
Under Review for Possible Upgrade
....EUR 559.2M Class A2 Notes,
Upgraded to A2 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed
Under Review for Possible Upgrade
....EUR 559.2M Class A3 Notes,
Upgraded to A2 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed
Under Review for Possible Upgrade
Issuer: Fastnet Securities 7 Ltd
....EUR 375M Class A1 Notes, Upgraded
to Aa3 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed Under
Review for Possible Upgrade
....EUR 375M Class A2 Notes, Upgraded
to Aa3 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed Under
Review for Possible Upgrade
....EUR 375M Class A3 Notes, Upgraded
to Aa3 (sf); previously on Jan 24, 2014 Baa2 (sf) Placed Under
Review for Possible Upgrade
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.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of these transactions
in the past six months.
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.
As the section on loss and cash flow analysis describes, 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.
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.
Ali Khan
Associate 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
Anthony Parry
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
William Ma
VP - Senior 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 upgrades 11 notes in 4 Fastnet Securities transactions
