London, July 07, 2022 — Moody’s Investors Service (“Moody’s”) today upgraded the rating of five notes from Elstree Funding No.1 PLC. The rating action reflects better than expected collateral performance as well as the increased levels of credit enhancement for the affected notes.
Moody’s affirmed the rating of the note which had sufficient credit enhancement to maintain its current rating.
….GBP208.7M Class A Notes, Confirmed Aaa (sf); previously on Nov 5, 2020 Final rating assigned Aaa (sf)
….GBP21.7M Class B tickets, upgraded to Aaa (sf); previously on Nov 5, 2020 Final rating assigned Aa1 (sf)
….GBP12.2M Class C tickets, upgraded to Aa2 (sf); previously on Nov 5, 2020 Final rating assigned A2 (sf)
….GBP6.8M Class D tickets, upgraded to A2 (sf); previously on Nov 5, 2020 Final rating given Baa2 (sf)
….GBP4.1M Class E tickets, upgraded to Baa2 (sf); previously on Nov 5, 2020 Final rating given Ba1 (sf)
….GBP4.8M Class F tickets, upgraded to Ba2 (sf); previously on Nov 5, 2020 Final rating assigned B1 (sf)
RATINGS RATIONALE
The rating action is driven by the decrease in key collateral assumptions i.e. portfolio expected loss (EL) assumption due to better than expected collateral performance and increased credit enhancement for the tranches concerned thanks to the deleveraging of transactions.
Revision of the main assumptions relating to the guarantees:
As part of the rating action, Moody’s has reassessed its lifetime loss expectations for the portfolio reflecting the collateral’s performance to date.
The performance of the transaction has remained stable since closing. The total number of defaults has not changed materially over the past year, with arrears over 90 days currently at 0.17% of the current pool balance, down from 0.52% a year ago. one year old. Cumulative repossessions currently stand at 0.08% of the initial pool balance, up from 0.00% a year earlier. There have been no realized losses to date with a pool factor of 70.3%.
Moody’s reduced the expected loss assumption to 4.8% as a percentage of the initial pool balance from 6.50% due to the good performance of the transaction. This equates to an expected loss assumption of 6.5% as a percentage of the current pool balance.
Moody’s also assessed loan-by-loan information as part of its detailed transaction review to determine credit support consistent with target rating levels and future loss volatility. Accordingly, Moody’s maintained the MILAN CE assumption at 23.0%.
Increased credit enhancement available
The sequential amortization led to the increased credit enhancement available in this transaction.
For example, the credit enhancement for the upgraded B tranche, C tranche, D tranche, E tranche and F tranche in today’s rating action increased to 23.6%, 17 .2%, 13.7%, 11.6% and 9.1%, compared to 17.3%, 12.8%, 10.3%, 8.8% and 7.0% respectively since the close.
The main methodology used in these ratings is “Moody’s Approach to Rating RMBS Using the MILAN Framework” published in February 2022 and available at https://ratings.moodys.com/api/rmc-documents/378445. You can also visit the Scoring Methodologies page at https://ratings.moodys.com for a copy of this methodology.
The analysis undertaken by Moody’s when initially assigning ratings of an RMBS security may focus on areas that become less relevant or generally remain unchanged during the monitoring phase. Please see Moody’s Approach to Rating RMBS Using the MILAN Framework for more information on Moody’s analysis at initial rating assignment and ongoing monitoring of RMBS.
Factors that would lead to an upgrade or downgrade of ratings:
Factors or circumstances that could cause ratings to improve include: (i) performance of the underlying collateral better than expected by Moody’s; (ii) an increase in available credit enhancement; (iii) improving the credit quality of the counterparties to the transaction; and (iv) a reduction in sovereign risk.
Factors or circumstances that could lead to a ratings downgrade include: (i) an increase in sovereign risk; (ii) performance of the underlying collateral below Moody’s expectations; (iii) deterioration of the Notes’ available credit enhancement; and (iv) deterioration in the credit quality of the counterparties to the transaction.
REGULATORY INFORMATION
For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Rating symbols and definitions from Moody’s are available at https://ratings.moodys.com/rating-definitions.
The analysis relies on an assessment of the characteristics of the collateral to determine the distribution of collateral losses, ie the function correlated to an assumption about the probability of occurrence of each level of possible collateral losses. Secondly, Moody’s assesses each possible collateral loss scenario using a model that reproduces the relevant structural characteristics to deduce the payouts and therefore the ultimate potential losses for each rated instrument. The loss incurred by a rated instrument 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.
Moody’s quantitative analysis involves an evaluation of scenarios that focus on factors contributing to rating sensitivity and consider the likelihood of material collateral losses or impaired cash flows. Moody’s weights the impact on rated instruments based on its assumptions of the likelihood of events in such scenarios occurring.
For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.
For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.
The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.
These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.
The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.
The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.
Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.
Lisa Macedo
Vice President – Senior Analyst
Structured Finance Group
Moody’s Investors Service Ltd.
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Olga Gekht
Senior Vice President/Manager
Structured Finance Group
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Customer service: 44 20 7772 5454
Release Office:
Moody’s Investors Service Ltd.
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