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May 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Fosse 2014-1 notes issued by Fosse Master Issuer plc (the master issuer), expected ratings, as follows:
Class A1 floating-rate notes: ‘F1+(EXP)sf’
Class A2 floating-rate notes: ‘AAA(EXP)sf’, Stable Outlook
The assignment of the final ratings is subject to the receipt of final documents conforming to information already received.
The master trust property consists of prime residential owner-occupied mortgage loans originated in the UK by Alliance & Leicester Plc (A&L) and, following the Part VII scheme effected in May 2010, mortgage loans originated by Santander UK plc (Santander, rated A/Stable/F1).
Credit enhancement of 24.88% for the class A notes is provided by the class B (1.97%), together with the unrated Z (20.19%) notes and a fully funded reserve fund (2.72%).
Short Legal Final Maturity Notes
The issue includes a tranche of class 2a7 notes, which are due to mature in April 2015, with a scheduled amortisation payment three months prior to final maturity. The issue represents a large proportion of the overall trust size. To make the payment, the structure relies on a large accumulation of principal receipts occurring over a period of three months and would use the reserve fund in a low prepayment scenario. Fitch has found in further analysis that after making the note payment there would be sufficient funds in the reserve fund to cover payment interruption.
Missing Prior Arrears Data
As per previous transactions, Santander supplied adverse data for county court judgements (CCJ) and bankruptcy/ individual voluntary arrangement (IVA) cases on a loan-by-loan basis. For prior mortgage arrears they were unable to supply such data, but confirmed as per previous transactions that they do not accept borrowers with prior mortgage arrears. Given this, Fitch did not make any adjustments on account of the missing data.
Missing Income Data
For around 2.3% of the portfolio, Santander was unable to provide borrower income data or the income data provided was for less than GBP10,000 per borrower For these cases, Fitch conservatively assumes an annual income of GBP1000, which places these loans in the Class 7 debt-to-income (DTI) band, which is the highest. This led to a relative increase in the default probabilities for these loans.
Sixteen per cent of the loans by current aggregate balance are fast-track loans
- all income has been verified for such borrowers. Santander supplied historical arrears performance data that shows the performance of fast-track loans to be commensurate with that of fully verified loans. Fitch has therefore not made any adjustments to the default probabilities on account of the fast-track loans in the portfolio.
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch’s base case expectations, which in turn may result in rating actions on the notes. Fitch’s analysis revealed that a 30% increase in the weighted average foreclosure frequency along with a 30% decrease in the weighted average recovery rate would not affect the class A notes’ ‘AAA(EXP)sf’ rating.
More detailed model implied ratings sensitivity can be found in the presale report, which is available at www.fitchratings.com.
Santander provided Fitch with a loan-by-loan data template; however, a number of key data fields were missing or partially completed. The agency has not received loan-level data in respect of prior mortgage arrears; for these loans, the agency reviewed the historical underwriting criteria in respect of A&L/ Santander’s acceptance of applications with prior adverse credit histories.
The agency also did not receive data for property construction year and the builders deposit indicator. Fitch made an assumption that 10% of loans were new build properties that had benefited from a builders deposit and applied a 5% haircut to the valuations of these loans.
It is Fitch’s opinion that where data was supplied for analysis, it was of adequate quality. We will review the results of an agreed-upon procedures report (AUP) conducted on the portfolio prior to the transaction closing. Reviews of AUP reports from previous Fosse issuances have contained no material errors which would affect Fitch’s ratings analysis.
To analyse credit enhancement, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.
A comparison of the transaction’s Representations, Warranties & Enforcement Mechanisms to those typical for that asset class is available by accessing the appendix that accompanies the new issue report (see Fosse Master Issuer Plc - Appendix, at www.fitchratings.com).
Link to Fitch Ratings’ Report: Fosse Master Issuer plc - Series 2014-1