Moody's assigns definitive ratings to Lannraig Master Issuer plc Series 2012-1
.GPB715M Class A Floating-Rate Notes due 2061, Assigned Aaa (sf)
Moody's has not rated GBP55M Class Z mortgage backed notes due 2061.
Moody's also affirms the existing ratings of notes issued by Lannraig Master Issuer plc.
The notes are backed by a pool of UK Buy-to-let (BTL) residential mortgage loans originated by Clydesdale Bank plc (A2 / P-1) and Yorkshire Bank Home Loans ltd (Not Rated, "YBHL"), a wholly owned subsidiary of Clydesdale Bank. This represents the second issuance out of the Lannraig Master Trust.
The ratings of the notes takes into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the portfolio expected loss of 2% and MILAN Aaa Credit Enhancement (CE) of 10%.
Portfolio expected loss of 2%: This is higher than the UK BTL sector average of 1.7% and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the collateral performance of Clydesdale Bank and YBHL originated loans to date, as provided by the originator and observed in the Lanark Master Trust; (ii) the current macroeconomic environment in the UK and the potential impact of future interest rate rises on the performance of BTL mortgage loans; and (iii) the potential drift in asset quality since the pool can be substituted continuously subject to certain triggers.
MILAN Aaa CE of 10%: This is in line with the UK BTL sector average of 9.4% and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers (i) the collateral performance of Clydesdale Bank and YBHL originated loans to date as described above; (ii) the weighted average current loan-to-value of 66.6% which is lower than the average of 77% seen in the sector; (ii) weighted average seasoning of 4.1 years and 97% of loans having never been in arrears; (iii) 5% of loans did not have original valuation data available, a more recent AVM valuation was provided instead; and (iv) potential drift in asset quality through substitutions as described above.
The ratings of the notes address 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 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.
The V Score for this transaction is Medium, which is lower than the UK Non-Conforming RMBS Sector Score of Medium/High. The lower score is driven by the following factors (i) the securitisation experience of Clydesdale Bank through its Prime RMBS Lanark Master Trust; (ii) the strong alignment of interest through Clydesdale Bank retaining a stake in the trust via the seller; and (iii) the current credit strength of Clydesdale Bank in its role as servicer and cash manager in the transaction. 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 according to the report "V-Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.
Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 2.0% of current balance to 6.0% of current balance, and the Milan Aaa Credit Enhancement was increased from 10% to 16%, the model output indicates that the rated notes would still achieve Aaa assessment 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.
In addition to the new issuance the rating trigger relating to the accounts held with Clydesdale Bank plc has been lowered from P-1 to P-2. On loss of P-2 the accounts are transferred to an account provider that satisfies the required ratings. An additional rating trigger provision has also been introduced, in the event Clydesdale Bank plc is downgraded by Moodys below P-1 a mortgages trust account reserve must be funded.
Moody's has assessed the probability and impact of a default of the account bank on the ability of the Lannraig Issuer's to meet their obligations under the transaction, including the impact of the loss of any cash held by the Bank should it default and any loss that may be incurred after that time due to any delay in redirecting payments to a new account.
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.
In rating this transaction, Moody's used a Master Trust model to assess 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.
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