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Rating Action:

Moody's upgrades Irish RMBS notes issued by Wolfhound 2008-1 and Wolfhound 2

25 Apr 2012

NOTE: On April 26, 2012, the press release was revised as follows: Correction to fourth sentence in the fourth paragraph under the ratings rationale section. Revised release follows.

London, 25 April 2012 -- Moody's Investors Service announced today that it has upgraded the ratings of the Class A notes issued by Wolfhound Funding 2008-1 Limited ("Wolfhound 2008-1") and the Class A notes issued by Wolfhound Funding 2 Limited ("Wolfhound 2") to A2 (sf). This follows recent amendments to the two transactions. All affected ratings appear at the end of the press release.

RATINGS RATIONALE

Today's rating action reflects: (i) a substantial increase in available credit enhancement following recent amendments to the deal documentation ; (ii) revision of key collateral assumptions due to continued deteroration in asset performance and (iii) the credit quality of transaction parties as well as structural features modified by the deal amemdments.

- Key collateral assumptions revised

Moody's has revised its expected loss assumptions for these deals, completing a roll rate analysis of delinquencies based on the assumption that most of the currently delinquent loans will not be able to cure their arrears.

As of January 2012, loans more than 90 days in arrears have increased to 11.6 per cent of current balance in Wolfhound 2008-1 and 8.2 per cent in Wolfhound 2, which constitutes an approximately 18 per cent and 21 per cent increase, respectively, compared to the levels as of June 2011. Cumulative losses realized since closing remain very low at 0 per cent of original pool balance in Wolfhound 2008-1 and 0.01 per cent in Wolfhound 2. Moody's notes that loss realization is slow for Irish RMBS given lengthy enforcement procedures in Ireland and moratorium imposed. For this reason, Moody's considers loans with delinquencies exceeding 360 days as a proxy for defaults. As of January 2012, the 360+ delinquencies in the transactions have increased by 13 per cent for Wolfhound 2008-1 and by 42 per cent for Wolfhound 2 compared to June 2011, reaching 3.8 per cent of the current pool balance in Wolfhound 2008-1 and 1.5 per cent in Wolfhound 2.

Moody's expects that the increasing unemployment and lower income arising from the austerity measures will continue to hurt borrowers' ability to fulfill their financial obligations. In addition the loss severity will also be high as a result of the oversupply of housing, lack of refinancing and further decline in house prices, expected to be equal to approximately 60 per cent from peak to trough. Approximately 83 per cent of the portfolio in Wolfhound 2008-1 and 86 per cent in Wolfhound 2 is currently in negative equity. As a result Moody's has increased the portfolio expected loss assumptions to 11.5 per cent of current pool balance for Wolfhound 2008-1 and 11 per cent for Wolfhound 2, corresponding to 10.1 per cent of original pool balance for Wolfhound 2008-1 and 9.9 per cent for Wolfhound 2.

Moody's has also re-assessed updated loan-by-loan information and increased its MILAN CE assumption to 35 per cent for both transactions. The increase in the MILAN CE takes into account the relatively high weighted average indexed LTV (174.1 per cent for Wolfhound 2008-1 and 183.5 per cent for Wolfhound 2) as well as the non owner-occupied portion in both portfolios (20.7 per cent in Wolfhound 2008-1 and 17.2 per cent in Wolfhound 2).

- Increase in available credit enhancement

Following the restructuring, the credit enhancement available to class A notes has increased from 10.3 per cent to 42.5 per cent for Wolfhound 2008-1 and from 14.5 per cent to 42.5 per cent for Wolfhound 2. The credit enhancement is in excess of Moody's current collateral score of 35 per cent. Additional cash flow analysis was conducted to ensure the resilience of the notes to a further deterioration of the collateral given the uncertain economic environment in Ireland.

Additional sensitivity analysis has been performed to assess the proportion of mortgage debt susceptible to write-down under the new Irish personal insolvency legislation proposed in January (see Moody's special report Proposed Irish Legislation Opens the Door To Widespread Debt Forgiveness published in February 2012). With Moody's predicted peak-to-trough house price fall of 60 per cent, approximately 83 per cent of the mortgage loans in Wolfhound 2008-1 and 86 per cent in Wolfhound 2 would be left in negative equity. Although Moody's views it as unlikely that all these loans would be written down to the market value of the property, the proportion of debt susceptible to write-down is equivalent to 35.2 per cent for Wolfhound 2008-1 and 37.8 per cent for Wolfhound 2. Moody's therefore views the current credit enhancement levels of 42.5 per cent for both transactions as sufficient to withstand significant write-downs under the proposed legislation.

- Deal amendments and counterparty risk

Bank of Scotland plc (A1/P-1 both under review for downgrade) acts as liquidity facility provider, interest rate swap provider, transaction account bank, collections account bank, servicer and cash manager in both transactions.

As part of the amendments, the interest rate swap agreement has been terminated. The swap was in place to help mitigate the potential mismatch between interest payments received on the mortgage loans, which are a combination of fixed rate and floating rate linked to either ECB base rate or the lenders standard variable rate, versus interest payments due on the notes, which are linked to EURIBOR. To account for the lack of swap Moody's has performed a sensitivity analysis by compressing the pool yield to a floor of EURIBOR minus 1 per cent after three years.

In both transactions, the trigger level for authorised investments, the liquidity facility provider and issuer account bank has been lowered from P-1 to P-2. Sensitivity analysis showed that the lowering of the triggers for authorised investments and bank accounts does not have significant impact on the rating of the Class A notes. The relaxation of the trigger levels for the liquidity facility provider has also minimal impact given the small liquidity facility amount of EUR 10M which corresponds to 0.27 per cent of the total pool as of closing for both transactions.

- Factors and Sensitivity Analysis

The new Irish personal insolvency legislation proposed in January could have a negative impact on the transactions as it might lead to a write-down of the mortgage debt supporting the notes (see Moody's special report "Proposed Irish Legislation Opens Door To Widespread Debt Forgiveness" published in February 2012).

As the euro area crisis continues the rating of the notes remain exposed to the uncertainties of credit conditions in the general economy. The deteriorating creditworthiness of euro area sovereigns as well as the weakening credit profile of the global banking sector could negatively impact the ratings of the notes. For more information please refer to the Rating Implementation Guidance published on 13 February 2012 "How Sovereign Credit Quality May Affect Other Ratings" and the special comment published on 19 of January 2012 "Why Global Bank Ratings Are Likely to Decline in 2012".

Following the downgrade of Ireland's long-term government bond rating to Ba1, Moody's lowered the maximum achievable ratings in Ireland to A1(sf). Furthermore, as discussed in Moody's special report "Rating Euro Area Governments Through Extraordinary Times -- An Updated Summary," published in October 2011, Moody's is considering reintroducing individual country ceilings for some or all euro area members, which could affect further the maximum structured finance rating achievable in those countries. Moody's is also continuing to consider the impact of the deterioration of sovereigns' financial condition and the resultant asset portfolio deterioration on mezzanine and junior tranches of structured finance transactions.

The principal methodology used in these ratings was Moody's Approach to Rating RMBS in Europe, Middle East, and Africa, published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

In reviewing the transactions, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) 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.

Wolfhound 2008-1 RESTRUCTURING OVERVIEW

On the 20 April 2012 the Wolfhound 2008-1 transaction documents were amended to incorporate the following main changes:

1. New Class Z loan of EUR 1,252M has been added to the structure

2. The reserve fund has been reduced from EUR 172 M to EUR 132 M which is equivalent to 3.5 per cent of the pool balance as of closing

3. Class A Notes have been partially redeemed using the proceeds of the Class Z loan, thereby increasing the total credit enhancement to 42.5 per cent

4. The swap agreement has been terminated. The swap was in place to help mitigate the potential mismatch between interest payments received on the mortgage loans, which are a combination of fixed rate and floating rate linked to either ECB base rate or the lenders standard variable rate, versus interest payments due on the notes, which are linked to EURIBOR

5. Liquidity Facility amount has been decreased from EUR 129M to EUR 10M

6. The trigger level for authorised investments, the liquidity facility provider, bank accounts and clearing accounts has been lowered from P-1 to P-2

Wolfhound 2 RESTRUCTURING OVERVIEW

On the 24 April 2012 the Wolfhound 2 transaction documents were amended to incorporate the following main changes:

1. New Class Z loan of EUR 805M has been added to the structure

2. The reserve fund has been reduced from EUR 124 M to EUR 97 M which is equivalent to 3.5 per cent of pool balance as of closing

3. Class A Notes have been partially redeemed using the proceeds of the Class Z loan, thereby increasing the total credit enhancement to 42.5 per cent

4. The swap agreement has been terminated. The swap was in place to help mitigate the potential mismatch between interest payments received on the mortgage loans, which are a combination of fixed rate and floating rate linked to either ECB base rate or the lenders standard variable rate, versus interest payments due on the notes, which are linked to EURIBOR

5. Liquidity Facility amount has been decreased from EUR 93M to EUR 10M

6. The trigger level for authorised investments, the liquidity facility provider, bank accounts and clearing accounts has been lowered from P-1 to P-2

LIST OF RATING ACTIONS:

Issuer: Wolfhound Funding 2008-1 Limited

....EUR 4,085M A Notes, Upgraded to A2 (sf); previously on Mar 10, 2011 Downgraded to Ba2 (sf)

Issuer: Wolfhound Funding 2 Limited

....EUR 2,821M A Notes, Upgraded to A2 (sf); previously on Mar 10, 2011 Downgraded to Baa1 (sf)

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Sophia Velissaratou
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

Barbara Rismondo
VP - Senior Credit Officer
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 Irish RMBS notes issued by Wolfhound 2008-1 and Wolfhound 2
No Related Data.
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