London, 30 November 2012 -- Moody's Investor Service continues to review the ratings of 37 senior notes issued by entities ultimately owned by The Paragon Group of Companies plc ("Paragon") pending the implementation of restructuring proposals.
The ratings of the affected notes were initially placed on review for possible downgrade on 14th October 2011 following the downgrade of Skipton Building Society from Baa1/P-2 to Ba1/NP. Moody's considers the affected transactions (the Paragon Transactions), to be exposed to payment disruption risk due to insufficient back-up servicing and cash management arrangements. Homeloan Management Limited ("HML"), which is part of Skipton Building Society ("Skipton"), acts as servicer, back-up servicer and back-up cash manager in all the Paragon Transactions.
Moody's review of the notes is also taking into account the legal risk arising from the fact that the issuers in the Paragon Transactions (the Paragon SPVs) are part of the Paragon group. In particular the risk of a pensions liability arising during the life of the Paragon Transactions is not so remote that it can be excluded in our rating analysis. For more information please refer to the special comment "Paragon Transactions' Potential Exposure to Pensions Claims Cannot Be Excluded from Rating Analysis" published on 29 March 2012.
Paragon has informed Moody's that it has submitted to noteholders for their approval restructuring proposals designed to address both the payment disruption and legal risks. In particular, the restructuring proposals include the addition of a back-up servicer facilitator as well as the incorporation of estimation language in the transaction documents to ensure continuity of payments in case of servicer disruption.
In addition, Paragon will amend the transaction documents such that the potential exposure to pension liabilities is mitigated and to ensure that Moody's is notified of any change to the group corporate structure that may increase the likelihood of secondary tax liabilities arising. Moody's expects that the noteholders' meetings will take place in December 2012, except for the First Flexible No. 5 plc and First Flexible No.6 plc meetings, which are postponed to 2013.
Moody's' intends to conclude the review of the notes following circulation of the noteholders' resolutions or the implementation of the restructuring proposals, if approved.
Moody's considers that the exposure to the Royal Bank of Scotland plc (RBS) as a swap and issuer account bank has been mitigated following the downgrade of RBS from A2/P-1 to A3/P-2 on 21 June 2012. In particular, issuer bank accounts were transferred to Barclays Bank plc (A2/P-1) and collateral was posted against various swaps with RBS.
The principal methodology used in these ratings was Moody's "Approach to Rating RMBS in Europe, Middle East, and Africa", published in June 2012 and Moody's "Approach to Rating Consumer Loan ABS Transactions", published in October 2012 for the respective RMBS and ABS deals. Please see the Credit Policy page on www.moodys.com a copy of this methodology.
Other Factors used in these ratings are described in "Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk" published in June 2011.
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.
Lyudmila Udot Analyst 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 Barbara Rismondo 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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