London, 15 November 2011 -- Moody's Investor Services has today upgraded all mezzanine and junior
classes of notes issued by Leek Finance Number Seventeen PLC (Leek 17),
Leek Finance Number Eighteen PLC (Leek 18) and Leek Finance Number Nineteen
PLC (Leek 19). The full list of affected ratings can be found at
the end of the press release.
RATINGS RATIONALE
Today's rating action reflects (i) the increased credit enhancement
in the transactions following the implementation of structural amendments
announced on 6 June 2011; (ii) the performance of the transactions
to date; and (iii) the negative outlook for UK non-conforming
residential mortgage-backed securities (NC RMBS).
-INCREASED CREDIT ENHANCEMENT
Leek 17, 18 and 19 have each purchased additional assets in the
form of UK gilts, which they funded via the issuance of class K
VFN notes. Payments to these notes rank junior to payments due
to the rated notes and the reserve fund replenishment. Bi-annual
interest received on the UK gilts is included in applied income and is
distributed in accordance with the relevant priority of payments.
The gilts have maturity dates in September 2016 for Leek 17 and March
2018 for Leek 18 and Leek 19. In accordance with the relevant priority
of payments, principal amounts received from the gilts will be added
to applied principal and used to repay rated notes, if still outstanding,
on the following IPD.
As a result of these structural amendments, credit enhancement available
to rated notes has increased. As of June 2011, additional
credit enhancement provided to the rated notes equals 30.6%
in Leek 17, 28.1% in Leek 18 and 32.0%
in Leek 19.
-PORTFOLIO PERFORMANCE
Moody's considers the performance of all three transactions to be in line
with expectations.
Leek 17 portfolio arrears have improved since the last review in 2010.
As of June 2011, loans more than three months in arrears are 10.9%,
compared to 14.7% in June 2010. Cumulative losses
have increased from 1.3% to 1.4%.
Leek 18 portfolio arrears have improved since the last review in 2010.
As of June 2011, loans more than three months in arrears are 8.8%,
compared to 12.0% in June 2010. Cumulative losses
have increased from 1.5% to 1.7%.
Leek 19 portfolio arrears have improved since our last rating action in
2009. As of June 2011, loans more than three months in arrears
are 9.4%, compared to 14.2% in June
2009. Cumulative losses have increased from 1.4%
to 2.4%.
-NEGATIVE OUTLOOK FOR UK NC RMBS
The outlook for UK NC RMBS collateral performance is negative because
of (i) unfavourable economic conditions; (ii) on-going fiscal
consolidation; and (iii) potential future interest rate increases
from the current historical lows. Moody's considers NC borrowers
to be particularly sensitive to such risks.
-KEY ASSUMPTIONS AND SENSITIVITY ANALYSIS
Moody's has maintained the expected loss and Milan Aaa CE assumptions
for each transaction. The expected loss Moody's assumed is 3.3%
as of the original portfolio balance for Leek 17, 4.5%
for Leek 18 and 6.0% for Leek 19. The Milan Aaa CE
used in the analysis is 23.0% as a percentage of the current
portfolio balance for Leek 17, 24.5% for Leek 18 and
25.0% for Leek 19.
Moody's tested the sensitivity of the ratings to various stress
scenarios. The results show that the ratings would be able withstand
an increase in the expected loss assumption of 40%, all other
parameters remaining constant. Similarly, the ratings would
be able to withstand a 40% increase in the MILAN Aaa CE assumption,
all other parameters remaining constant.
These assumptions remain subject to uncertainties such as the future general
economic activity, interest rates and house prices. If realised
recovery rates were to be lower or default rates were to be higher than
assumed, the rating would be negatively affected.
-OTHER AMENDMENTS ANNOUNCED ON 2 JUNE 2011
The structural amendments include the introduction of a put option date,
upon which the rated note noteholders can choose to have their notes redeemed
by issuers at par less any outstanding principal deficiency attributable
to those notes. The notes will be redeemed from the proceeds of
the Co-operative Bank subscribing to further class J VFN notes.
If some but not all of noteholders exercise the option, the credit
support under all notes will not be affected, as the redeemed notes
will be replaced by class J VFN notes. Moody's notes that
the failure by the issuer to redeem the notes at the put option date does
not constitute an event of default under the terms and conditions of the
notes. Moody's rating addresses the expected loss posed to
investors by the legal final maturity and therefore does not address the
likelihood of notes being redeemed on a put option date.
An additional coupon was added to senior class A2 notes. It is
paid out of loan proceeds due from the Co-operative Bank.
If insufficient payment is received from the Co-operative Bank
to make additional coupon payments, the shortfall will be covered
using other issuer cash flows, but such shortfall will be paid junior
to other payments due to the rated notes and the reserve fund.
Moody's rating of the senior notes does not address payment of this
additional coupon.
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 rating these 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 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.
LIST OF AFFECTED SECURITIES
Issuer: Leek Finance Number Seventeen PLC
....EUR105.6M Mc Notes, Upgraded
to Aa1 (sf); previously on Aug 7, 2008 Confirmed at Aa3 (sf)
....GBP22M Ba Notes, Upgraded to Aa2
(sf); previously on Apr 12, 2006 Definitive Rating Assigned
A2 (sf)
....EUR48M Cc Notes, Upgraded to A2
(sf); previously on Apr 12, 2006 Definitive Rating Assigned
Baa2 (sf)
....EUR39.5M Bc Notes, Upgraded
to Aa2 (sf); previously on Apr 12, 2006 Assigned A2 (sf)
Issuer: Leek Finance Number Eighteen PLC
....GBP12.5M Ma Notes, Upgraded
to Aa1 (sf); previously on Oct 27, 2006 Definitive Rating Assigned
Aa3 (sf)
....GBP25.9M Ba Notes, Upgraded
to Aa3 (sf); previously on Oct 27, 2006 Definitive Rating Assigned
A3 (sf)
....GBP6M Ca Notes, Upgraded to A3 (sf);
previously on Oct 27, 2006 Definitive Rating Assigned Baa2 (sf)
....EUR83.7M Mc Notes, Upgraded
to Aa1 (sf); previously on Oct 27, 2006 Assigned Aa3 (sf)
....EUR26M Bc Notes, Upgraded to Aa3
(sf); previously on Oct 27, 2006 Assigned A3 (sf)
....EUR49M Cc Notes, Upgraded to A3
(sf); previously on Oct 27, 2006 Assigned Baa2 (sf)
Issuer: Leek Finance Number Nineteen PLC
....GBP23M Ma Notes, Upgraded to Aa1
(sf); previously on Dec 3, 2009 Confirmed at Aa2 (sf)
....GBP12M Ba Notes, Upgraded to Aa3
(sf); previously on Dec 3, 2009 Downgraded to Baa1 (sf)
....GBP6M Ca Notes, Upgraded to A3 (sf);
previously on Dec 3, 2009 Downgraded to B1 (sf)
....GBP13M Da Notes, Upgraded to Baa3
(sf); previously on Dec 3, 2009 Downgraded to Caa3 (sf)
....EUR68M Mc Notes, Upgraded to Aa1
(sf); previously on Dec 3, 2009 Confirmed at Aa2 (sf)
....EUR51M Bc Notes, Upgraded to Aa3
(sf); previously on Dec 3, 2009 Downgraded to Baa1 (sf)
....EUR32.9M Cc Notes, Upgraded
to A3 (sf); previously on Dec 3, 2009 Downgraded to B1 (sf)
....EUR6.7M Dc Notes, Upgraded
to Baa3 (sf); previously on Dec 3, 2009 Downgraded to Caa3
(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
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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 entity or its 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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.
Lyudmila Udot
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 UK NC RMBS notes issued by Leek 17, 18 and 19
