Madrid, December 21, 2018 -- Moody's Investors Service ("Moody's") has today upgraded the ratings of
5 tranches, downgraded the ratings of 2 tranches, and affirmed
18 tranches in 4 Eurosail UK Non-conforming RMBS transactions:
Eurosail 2006-1
....GBP321.2M Class A2c Notes,
Affirmed Aa1 (sf); previously on Feb 28, 2018 Affirmed Aa1
(sf)
....EUR20.7M Class B1a Notes,
Affirmed Aa1 (sf); previously on Feb 28, 2018 Affirmed Aa1
(sf)
....GBP17.5M Class B1c Notes,
Affirmed Aa1 (sf); previously on Feb 28, 2018 Affirmed Aa1
(sf)
....EUR13.6M Class C1a Notes,
Upgraded to Aa3 (sf); previously on Feb 28, 2018 Upgraded to
A3 (sf)
....GBP16.5M Class C1c Notes,
Upgraded to Aa3 (sf); previously on Feb 28, 2018 Upgraded to
A3 (sf)
....EUR26.4M Class D1a Notes,
Affirmed Caa1 (sf); previously on Feb 28, 2018 Affirmed Caa1
(sf)
....GBP3M Class D1c Notes, Affirmed
Caa1 (sf); previously on Feb 28, 2018 Affirmed Caa1 (sf)
Eurosail 2006-2BL PLC
....GBP269.06M Class A2c Notes,
Affirmed Aa1 (sf); previously on Sep 17, 2009 Downgraded to
Aa1 (sf)
....EUR27M Class B1a Notes, Affirmed
Aa1 (sf); previously on Oct 14, 2015 Upgraded to Aa1 (sf)
....US$18M Class B1b Notes, Affirmed
Aa1 (sf); previously on Oct 14, 2015 Upgraded to Aa1 (sf)
....EUR24.8M Class C1a Notes,
Upgraded to A1 (sf); previously on Oct 14, 2015 Upgraded to
A2 (sf)
....GBP11M Class C1c Notes, Upgraded
to A1 (sf); previously on Oct 14, 2015 Upgraded to A2 (sf)
....EUR9M Class D1a Notes, Affirmed
B2 (sf); previously on Oct 14, 2015 Upgraded to B2 (sf)
....GBP17.3M Class D1c Notes,
Affirmed B2 (sf); previously on Oct 14, 2015 Upgraded to B2
(sf)
....GBP7.38M Class E1c Notes,
Affirmed Caa3 (sf); previously on Sep 17, 2009 Downgraded to
Caa3 (sf)
Eurosail 2006-3NC PLC
....EUR128M Class A3a Notes, Affirmed
Aa1 (sf); previously on Jul 27, 2017 Upgraded to Aa1 (sf)
....GBP80.2M Class A3c Notes,
Affirmed Aa1 (sf); previously on Jul 27, 2017 Upgraded to Aa1
(sf)
....EUR48.8M Class B1a Notes,
Upgraded to Aa1 (sf); previously on Jul 27, 2017 Upgraded to
Aa2 (sf)
....EUR20M Class C1a Notes, Affirmed
Ba3 (sf); previously on Oct 14, 2015 Upgraded to Ba3 (sf)
....GBP9.85M Class C1c Notes,
Affirmed Ba3 (sf); previously on Oct 14, 2015 Upgraded to Ba3
(sf)
....EUR6.05M Class D1a Notes,
Affirmed Caa3 (sf); previously on Oct 14, 2015 Upgraded to
Caa3 (sf)
....GBP11M Class D1c Notes, Affirmed
Caa3 (sf); previously on Oct 14, 2015 Upgraded to Caa3 (sf)
Eurosail-UK 2007-5NP PLC
....GBP439.1M Class A1a Notes,
Downgraded to A3 (sf); previously on Dec 17, 2015 Upgraded
to A1 (sf)
....GBP75M Class A1c Notes, Downgraded
to A3 (sf); previously on Dec 17, 2015 Upgraded to A1 (sf)
....GBP29.04M Class B1c Notes,
Affirmed Caa3 (sf); previously on Dec 17, 2015 Confirmed at
Caa3 (sf)
RATING RATIONALE
Upgrades are prompted by an increase in the credit enhancement available
for the affected tranches, and in some cases, due to a decrease
of the key collateral assumptions, namely the portfolio Expected
Loss (EL) and MILAN CE. Today's rating downgrades reflect the correction
of an input in our cash flow modelling for Eurosail-UK 2007-5NP
PLC.
--Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance to
date.
In Eurosail 2006-1, the cumulative losses currently stand
at 4.2% of the original pool balance. Moody's decreased
the EL assumption to 6.0% as a percentage of original pool
balance from 6.5% previously.
Similarly, in Eurosail 2006-3NC PLC, the cumulative
losses currently stand at 4.3% of the original pool balance.
Moody's decreased the EL assumption to 7.25% as a percentage
of original pool balance from 7.9% previously.
Moody's EL assumptions for the other two transactions remain unchanged.
Moody's has also assessed loan-by-loan information as a
part of its detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future losses.
Moody's updated the MILAN CE assumption based on updated loan-by-loan
data on the underlying pools, taking into consideration the Minimum
EL Multiple, a floor defined in Moody's methodology for rating EMEA
RMBS transactions. As a result, Moody's has decreased the
MILAN CE assumption for Eurosail 2006-3NC PLC to 37.0%
from 40.0% previously. MILAN CE assumptions for the
other three transactions were left unchanged.
Today's rating action also took into account the increased uncertainty
relating to the impact of the performance of the UK economy on the transaction
over the next few years due to the on-going discussions relating
to the final Brexit agreement.
--Increase in Available Credit Enhancement
The increase in the available credit enhancement may be explained by deleveraging,
due to sequential amortization and/or non-amortizing Reserve Funds
and/or trapping of excess spread. All transactions, except
Eurosail-UK 2007-5NP PLC, are currently subject to
sequential amortization. Reserve Funds in all transactions,
with the same exception of Eurosail-UK 2007-5NP PLC,
are currently non-amortizing and thus provide an increasing credit
enhancement.
--Model input correction in Eurosail-UK 2007-5NP
PLC
In Eurosail-UK 2007-5NP PLC, the correction to an
input for the cash model has partially prompted the downgrade of two senior
Notes. In prior rating actions, the transaction was modeled
sequentially, based on the initial conditions for amortization.
In November 2013, the transaction was restructured affecting the
conditions to switch from sequential to pro-rata amortization.
Based on these amended conditions, the transaction has been amortising
pro-rata since December 2015. The model has now been corrected
to reflect the priority of payment among the different Notes. Additionally,
the rating action on these two tranches reflects the impact of higher
losses expected as a percentage of the current portfolio.The downgrades
of the two Notes reflect these changes.
The affirmation of the ratings reflect that the current credit enhancement
is sufficient to maintain the current ratings. In the specific
case of tranche B1c in Eurosail-UK 2007-5NP, Moody's
rating takes into consideration: (1) the loss resulting from the
tranche write-down following the restructuring of Eurosail-UK
2007-5NP PLC in November 2013 (write-down of 28%
of the original Note principal balance); and (2) any future loss
to be incurred due to collateral performance. Moody's believes
that the expected recovery rate on this Note is consistent with the current
rating.
Today's rating action also took into consideration the Notes' exposure
to relevant counterparties, such as servicers, swap counterparties
and account banks.
The ratings of the Notes in all transactions, except Eurosail-UK
2007-5NP PLC, are capped at Aa1 (sf) due to the Financial
Disruption Risk, stemming from the fact that the servicer is an
unrated entity and the transaction's mitigating structural features are
not sufficient to achieve the Aaa (sf) rating. This cap constraints
the ratings of senior Notes in the transactions.
Principal Methodology
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" published in September 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The Credit Ratings for this rating action were assigned in accordance
with Moody's existing Methodology entitled "Moody's Approach to Rating
RMBS Using the MILAN Framework" dated 11 September 2017. Please
note that on 14 November 2018, Moody's released a Request for Comment,
in which it has requested market feedback on potential revisions to its
Methodology for RMBS Using the MILAN Framework. If the revised
Methodology is implemented as proposed, the Credit Ratings may be
NEUTRALLY affected. Please refer to Moody's Request for Comment,
titled "Proposed Update to Moody's Approach to Rating RMBS Using the MILAN
Framework" for further details regarding the implications of the proposed
Methodology revisions on certain Credit Ratings.
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
include: (1) performance of the underlying collateral that is better
than Moody's expected; (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
include: (1) an increase in sovereign risk; (2) performance
of the underlying collateral that is worse than Moody's expected;
(3) deterioration in the Notes' available credit enhancement; and
(4) deterioration in the credit quality of the transaction counterparties.
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.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Maria Turbica Manrique
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Gaby Trinkaus
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
