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Rating Action:

Moody's upgrades 3 classes of Gracechurch 2007 UK SME ABS notes

28 Nov 2013

London, 28 November 2013 -- Moody's Investors Service, ("Moody's") has today upgraded the Class B1, B2 and B3 notes (the "Class B notes") to A2 (sf) from Baa1 (sf), the Class C1, C2 and C3 notes (the "Class C notes") to Baa1 (sf) from Ba1 (sf) and the class D1 and D2 notes (the "Class D notes") to Ba2 (sf) from B2 (sf) of the Gracechurch Corporate Loans Series 2007-1 transaction. At the same time Moody's affirmed the A1 (sf) rating of Class A1, A2 and A3 notes (the "Class A notes"), the A2 (sf) rating of class AB1 and AB2 (the "Class AB notes") and the Caa1 (sf) rating of Class E1 and E2 notes (the "Class E notes"). Today's rating action reflects the 1) better-than-expected collateral performance and 2) deleveraging of the transaction and the build-up of credit enhancement since the closing date.

Gracechurch Corporate Loans Series 2007-1 is a synthetic securitisation backed by loans granted to small and medium-sized enterprises (SME) originated by Barclays Bank PLC (A2/P-1) and issued in 2007. A detailed list of the affected notes is presented at the end of the RATINGS RATIONALE section of this press release.

RATINGS RATIONALE

SOLID COLLATERAL PERFORMANCE

Today's upgrade reflects the better-than-expected collateral performance, evidenced by the low default levels observed in the transaction since the closing date in February 2007. As of October 2013, cumulative defaults represented 2.5% of the pool balance at closing. Moody's decreased its default rate over current balance assumption to 12.0% from 18.6%, reflecting the lower-than-expected default rate, which corresponds to a rating proxy of Ba3 over the assumed weighted average life of the pool of 4.9 years. In addition, Moody's decreased its mean recovery rate assumption to 45%, reflecting lower-than-expected recoveries; and increased its coefficient of variation assumption to 51.5% from 40.2%, which results in a portfolio credit enhancement of 23.8%.

DELEVERAGING OF THE TRANSACTION AND BUILD UP OF CREDIT ENHANCEMENT

Today's upgrade also reflects the deleveraging of the transaction and the increase in credit enhancement since the closing date, which at present is 46.9%, 33.8% and 25.6% for the Class B, C and D notes, respectively. Moody's believes these levels of credit enhancement are sufficient to support the upgrades. Today's affirmation of the Class A and AB notes were driven by their very high levels of credit enhancement, which stand at 82.2% and 58.0% respectively. However, the maximum rating achievable by those notes is constrained by counterparty risk considerations (see "MOODY'S HAS CONSIDERED EXPOSURE TO COUNTERPARTY RISK" section). The affirmation of the rating on the Class E notes is mainly driven by borrower concentration risk to which the Class E notes are exposed. According to Moody's computations, the current level of credit enhancement available to the Class E notes covers only the seven largest borrowers of the pool. At the October 2013 reporting date, the top borrower represented 4.3% while the top 10 borrowers represented 20.2%.

MOODY'S HAS CONSIDERED EXPOSURE TO COUNTERPARTY RISK

Moody's has also taken into consideration the exposure of the notes to Barclays Bank PLC (Barclays), which performs a variety of roles in the transaction: servicer, CDS counterparty, cross currency swap counterparty and cash deposit bank.

In its role as cash deposit bank, Barclays holds the note proceeds until the final discharge date, which is the earlier of the legal final maturity date (September 2031), the 10% clean-up call date or any other date on which all the notes are fully redeemed. Following Barclays' downgrade to A2 by Moody's in June 2012 and the consequent cash deposit bank downgrade event, the bank did not replace itself nor put a guarantee in place. As a result, Moody's considers that the notes are fully exposed to Barclays' risk until their maturity. As such, the ratings for the Class A and all other classes of notes are constrained at A1(sf) and A2(sf), respectively. Moody's considers that the Class A notes can achieve a higher rating than the cash deposit bank as their exposure to the latter is mitigated by their short remaining life, at less than a year. For more details please refer to the Press Release issued by Moody's when it took a rating action in relation to this risk (https://www.moodys.com/research/Moodys-downgrades-five-Gracechurch-2007-UK-SME-ABS-notes--PR_279537).

The rating agency also assessed the exposure to Barclays as cross currency swap counterparty, which does not have a negative effect on the rating levels at this time. Moody's used ABSROM to model the cash flows and determine the losses for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the inverse normal distribution assumed for the portfolio default rate. In each default scenario, Moody's calculates the corresponding loss for each class of notes, given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss for each tranche is the sum product of the probability of occurrence of each default scenario and the loss derived from the cash flow model in each default scenario for each tranche. As such, Moody's analysis encompasses the assessment of stressed scenarios.

METHODOLOGIES

The methodologies used in this rating were Moody's Approach to Rating EMEA SME Balance Sheet Securitisations published in May 2013, The Temporary Use of Cash in Structured Finance Transactions: Eligible Investment and Bank Guidelines published in March 2013 and Approach to Assessing Swap Counterparties in Structured Finance Cash Flow Transactions published in November 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

LIST OF AFFECTED NOTES

Issuer: Lambda Finance B.V. - Gracechurch Corporate Loans Series 2007-1

....GBP1046M A1 Notes, Affirmed A1 (sf); previously on Aug 8, 2013 Downgraded to A1 (sf)

....EUR1058.75M A2 Notes, Affirmed A1 (sf); previously on Aug 8, 2013 Downgraded to A1 (sf)

....US$2290M A3 Notes, Affirmed A1 (sf); previously on Aug 8, 2013 Downgraded to A1 (sf)

....GBP106.75M AB1 Notes, Affirmed A2 (sf); previously on Aug 8, 2013 Downgraded to A2 (sf)

....EUR103.75M AB2 Notes, Affirmed A2 (sf); previously on Aug 8, 2013 Downgraded to A2 (sf)

....GBP32.6M B1 Notes, Upgraded to A2 (sf); previously on Jul 8, 2009 Downgraded to Baa1 (sf)

....EUR65.15M B2 Notes, Upgraded to A2 (sf); previously on Jul 8, 2009 Downgraded to Baa1 (sf)

....US$10M B3 Notes, Upgraded to A2 (sf); previously on Jul 8, 2009 Downgraded to Baa1 (sf)

....GBP36.4M C1 Notes, Upgraded to Baa1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

....EUR70.6M C2 Notes, Upgraded to Baa1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

....US$23M C3 Notes, Upgraded to Baa1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

....GBP33M D1 Notes, Upgraded to Ba2 (sf); previously on Jul 8, 2009 Downgraded to B2 (sf)

....EUR40.25M D2 Notes, Upgraded to Ba2 (sf); previously on Jul 8, 2009 Downgraded to B2 (sf)

....GBP43.1M E1 Notes, Affirmed Caa1 (sf); previously on Jul 8, 2009 Downgraded to Caa1 (sf)

....EUR40.95M E2 Notes, Affirmed Caa1 (sf); previously on Jul 8, 2009 Downgraded to Caa1 (sf)

REGULATORY DISCLOSURES

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 this transaction in the past six months.

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.

Frederic Lautard
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carole Gintz
Senior Vice President/Manager
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 3 classes of Gracechurch 2007 UK SME ABS notes
No Related Data.
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