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Rating Action:

Moody's upgrades notes in Marble Arch Residential Securitisation No 4 and Preferred Residential Securities 05-1 and 7

12 Aug 2014

London, 12 August 2014 -- Moody's Investors Service has upgraded eight mezzanine & junior notes issued by Marble Arch Residential Securitisation No. 4 plc, five mezzanine and junior notes issued by Preferred Residential Securities 05-1 PLC and one mezzanine note issued by Preferred Residential Securities 7 PLC. The increase in available credit enhancement in all three deals and improved collateral performance in Preferred Residential Securities 7 PLC prompted today's upgrades. Moody's also confirmed the rating of one junior note in Preferred Residential Securities 7 PLC and affirmed the ratings of all the remaining notes in the three affected deals. Please refer to the list of the affected ratings at the end of this press release, before the regulatory disclosure section. The list is an integral part of this press release and identifies each affected rating.

On 16 April 2014 Moody's placed on review for upgrade the rating of the class C1 and D1 notes in Marble Arch Residential Securitisation No. 4 plc and the class B1 and C1 notes in Preferred Residential Securities 05-1 PLC due to an increase in available credit enhancement. Moody's also placed on review for upgrade the ratings of the class D notes of Preferred Residential Securities 7 PLC due to an increase in credit enhancement and an improvement in the collateral performance. Today's rating actions conclude these reviews.

RATINGS RATIONALE

Today's upgrades reflect increases in available credit enhancement in all three affected transactions and better than expected collateral performance in Preferred Residential Securities 7 PLC. Moody's has confirmed the ratings of the class D notes in Preferred Residential Securities 7 PLC due to the impact of the liquidity facility fees on the excess spread. Moody's affirmed the senior notes in all three affected deals because the payment disruption risk caps the ratings at Aa1 (sf).

--- Increase in available credit enhancement

The increase in the credit enhancement was driven by deleveraging of the structures and, in the case of Marble Arch Residential Securitisitation No.4 plc, excess spread capture by replenishment of the reserve fund.

The notes are amortising sequentially following the breach of the performance triggers based on a level of 22.5% of 90+ days delinquencies over current principal pool balance. The share of loans more than 3 months in arrears is currently 27.4% in Marble Arch Residential Securitisation No. 4 plc, 41.2% in Preferred Residential Securities 05-1 PLC and 36.9% for Preferred Residential Securities 7 PLC.

During the previous rating action in 2009, the reserve fund was fully drawn in Marble Arch Residential Securitisation No.4 plc and there was a Principal Deficiency Ledger of 240,267 pounds. The reserve fund has been fully funded since June 2012 following excess spread capture.

Moody's confirmed the rating of the class D notes in Preferred Residential Securities 7 PLC because the credit enhancement available to this class may decrease as the rating agency expects the excess spread to turn negative in the future. The reserve fund is the only source of credit enhancement available to the class D notes. The issuer pays substantial fixed fees in priority to noteholders, in particular interest margin and mandatory costs related to the standby liquidity facility drawing. Since the size of the standby drawing is not amortising in line with the pool balance, the fees as a percentage of the spread increase every quarter providing substantial drag on the excess spread in the deal.

--- Collateral performance

The collateral performance in Preferred Residential Securities 7 PLC has been better than expected by Moody's. The cumulative losses realised since closing are equal to 0.9% of the original pool balance, a minor increase from 0.7% of the original pool balance realized as of March 2010.The weighted average loss severity since inception remained low at 11.2%, driven by low loan to indexed value ratio of 46%. Loan to indexed value ratio was 52% in March 2010. Decrease in the indexed loan to value since the previous review of the assumptions in March 2010 led to lower expected severity for the MILAN CE calculations. Moody's has decreased its expected loss assumption to 1.2% from 1.5% of the original pool balance and has decreased the MILAN CE assumption to 19% from 23%. The expected loss and the MILAN CE are the two key parameters used by Moody's to calibrate the loss distribution curve, which is one of the inputs into the RMBS cash-flow model.

The securitised portfolios in Marble Arch Residential Securitisation No. 4 plc and Preferred Residential Securities 05-1 PLC are performing in line with Moody's expectations. Moody's maintained its expected loss at 7.0% and 4% of the original pool balance respectively. Moody's also maintained its MILAN CE assumptions for both deals at 32% for Marble Arch Residential Securitisation No. 4 plc and 31% for Preferred Residential Securities 05-1.

--- The ratings of senior notes are constrained by the payment disruption risk

Moody's did not upgrade the senior notes in the three affected deals because the ratings are capped at Aa1 (sf) due to the payment disruption risk. Despite the presence of back-up servicer and cash manager in the structure, the back-up arrangements are not sufficiently warm to avoid payment disruption in case of cash manager default. Acenden Limited (NR) is the servicer and cash manager of these three transactions. Homeloan Management Limited (NR) acts as the back-up servicer and back-up cash manager.

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.

Factors that would lead to an upgrade or downgrade of the rating:

Factors or circumstances that could lead to an upgrade of the ratings include (1) a better than expected performance of the underlying collateral, and (2) further deleveraging of the capital structure and (3) improvement in the credit quality of the key transaction counterparties.

Factors or circumstances that could lead to a downgrade of the ratings include (1) a worse than expected performance of the underlying collateral (2) deterioration in the notes' available credit enhancement and (3) deterioration in the credit quality of the key transaction counterparties.

LIST OF AFFECTED RATINGS

Issuer: Marble Arch Residential Securitisation No. 4 plc

....GBP231M A3c Notes, Affirmed Aa1 (sf); previously on Oct 30, 2009 Downgraded to Aa1 (sf)

....EUR36.4M B1a Notes, Upgraded to Aa1 (sf); previously on Oct 30, 2009 Confirmed at Aa3 (sf)

....US$27.1M B1b Notes, Upgraded to Aa1 (sf); previously on Oct 30, 2009 Confirmed at Aa3 (sf)

....GBP20M B1c Notes, Upgraded to Aa1 (sf); previously on Oct 30, 2009 Confirmed at Aa3 (sf)

....US$43.45M C1a Notes, Upgraded to Aa3 (sf); previously on Apr 16, 2014 A2 (sf) Placed Under Review for Possible Upgrade

....GBP15M C1c Notes, Upgraded to Aa3 (sf); previously on Apr 16, 2014 A2 (sf) Placed Under Review for Possible Upgrade

....EUR20.7M D1a Notes, Upgraded to Ba2 (sf); previously on Apr 16, 2014 B2 (sf) Placed Under Review for Possible Upgrade

....GBP26M D1c Notes, Upgraded to Ba2 (sf); previously on Apr 16, 2014 B2 (sf) Placed Under Review for Possible Upgrade

....GBP25.2M E1c Notes, Upgraded to Caa3 (sf); previously on Oct 30, 2009 Downgraded to Ca (sf)

Issuer: Preferred Residential Securities 05-1 PLC

....GBP218.6M A2c Notes, Affirmed Aa1 (sf); previously on Dec 21, 2009 Downgraded to Aa1 (sf)

....EUR7M B1a Notes, Upgraded to Aa1 (sf); previously on Apr 16, 2014 Aa3 (sf) Placed Under Review for Possible Upgrade

....GBP22.6M B1c Notes, Upgraded to Aa1 (sf); previously on Apr 16, 2014 Aa3 (sf) Placed Under Review for Possible Upgrade

....GBP10.8M C1c Notes, Upgraded to Aa2 (sf); previously on Apr 16, 2014 A2 (sf) Placed Under Review for Possible Upgrade

....GBP15.8M D1c Notes, Upgraded to B3 (sf); previously on Dec 21, 2009 Downgraded to Caa1 (sf)

....GBP3.4M E Notes, Upgraded to Ca (sf); previously on Dec 21, 2009 Downgraded to C (sf)

Issuer: Preferred Residential Securities 7 PLC

....GBP309.6M A2 Notes, Affirmed Aa1 (sf); previously on Mar 30, 2010 Downgraded to Aa1 (sf)

....GBP40.5M B Notes, Upgraded to Aa1 (sf); previously on Mar 30, 2010 Upgraded to Aa2 (sf)

....GBP37.5M C Notes, Affirmed A2 (sf); previously on Mar 30, 2010 Upgraded to A2 (sf)

....GBP6M D Notes, Confirmed at Baa1 (sf); previously on Apr 16, 2014 Baa1 (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.

Lyudmila Udot
Asst Vice President - 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

Christophe de Noaillat
MD - Structured Finance
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 notes in Marble Arch Residential Securitisation No 4 and Preferred Residential Securities 05-1 and 7
No Related Data.
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