GBP 2,788.1 Million of debt securities rated
London, 19 November 2012 -- Moody's Investors Service has today assigned definitive credit ratings to the following classes of notes issued by Gosforth Funding 2012-2 plc:
....GBP 1,000,000,000 Class A1a Notes due 2049, Assigned Aaa(sf)
....GBP 678,700,000 Class A1b Notes due 2049, Assigned Aaa(sf)
....GBP 1,021,300,000 Class A2 Notes due 2049, Assigned Aaa(sf)
....GBP 88,100,000 Class M Notes due 2049, Assigned Aa2(sf)
The GBP 146,800,000 Class Z notes due 2049 are not rated by Moody's.
The notes are backed by a pool of prime owner-occupied UK residential mortgage loans originated by Northern Rock Asset Management plc and Virgin Money plc. This represents the fourth RMBS in the Gosforth series. At closing the total credit enhancement for the Class A notes is 10% including an amortising reserve fund of 2.0%.
Homeloan Management Limited (Not Rated) will act as back-up servicer and is committed to stepping into the servicing role within 90 days should Virgin Money's appointment as servicer be terminated under the terms of the current servicing agreement. The transaction also benefits from a back-up cash manager, the Royal Bank of Scotland (A3 / P-2) and back-up servicer facilitator, Law Debenture Corporate Services Limited (Not Rated).
The ratings are primarily based on the credit quality of the portfolio, its diversity, the structural features of the transaction and its legal integrity. From the assessment of the credit quality of the underlying mortgage loan pool, Moody's determined the portfolio expected loss of 1% and MILAN Credit Enhancement (CE) of 7%.
Portfolio expected loss of 1%: This is in line with the UK Prime sector average and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the low current loan to value (CLTV) of 60.0%; (ii) the collateral performance of Virgin Money originated loans to date, as provided by the originators and observed in the originators previous transactions; and (iii) the current macroeconomic environment in the UK.
MILAN CE of 7%: This is slightly lower than the UK Prime sector average and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers (i) the historic collateral performance as described above; (ii) the relatively low weighted average current loan-to-value of 60.0%; (iii) weighted average seasoning of 2.8 years; (iv) the static nature of the portfolio with no substitutions or further advances; and (v) any product switches from repayment to interest-only will remain in the pool.
The V Score for this transaction is Low/Medium, which is in line with the score assigned for the UK Prime RMBS sector mainly due to the fact that it is a securitisation of prime UK residential mortgages for which we have over ten years of historical performance data. V Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V-Score has been assigned accordingly to the report "V-Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.
One unusual feature of the transaction is the presence of Rating Agency Confirmation clauses ("RAC" clauses) as part of the other remedial action in event of swap trigger breach. This means in the event of a trigger breach, one possible remedial action is obtaining Moody's confirmation that there will not be an adverse impact on the then current rating of the notes. This clauses decreases the effectiveness of the rating triggers. We have taken this increased linkage into account in our analysis.
Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 1.0% of current balance to 3.0% of current balance, and the MILAN CE was increased from 7.0% to 8.4%, the model output indicates that the Class A notes would still achieve Aaa assuming that all other factors remained equal. Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.
The Foreign Account Tax Compliance Act (FATCA), a US legislation, may impact the transaction. The regulations implementing the Act are still in draft form and Moody's is currently reviewing the potential impact of FATCA. Should this transaction become subject to US withholding tax under FATCA the rating of the Notes may be negatively impacted.
The principal methodology used in this rating was Moody's Approach to Rating RMBS in Europe, Middle East, and Africa published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Other factors used in this rating are described in Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk published in June 2011.
In rating this transaction, 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.
The rating on the notes addresses the expected loss posed to investors by the legal final maturity. In Moody's opinion, the structure allows for timely payment of interest and principal with respect of the rated notes by the legal final maturity. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.
Moody's will monitor this transaction on an ongoing basis. For updated monitoring information, please contact firstname.lastname@example.org.
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Chen Xue Associate Analyst 1 Structured Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Annabel Schaafsma Senior Vice President Structured Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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