New Issue: Jupiter Mortgage No.1 PLC
Primary Credit Analyst:
Vedant Thakur, London + 44 20 7176 3909; [email protected]
Secondary Contact:
Philip Bane, Dublin + 353 1 568 0623; [email protected]
Table Of Contents
Transaction Summary
Originator
Servicing
Collateral
Credit Analysis And Assumptions
Macroeconomic And Sector Outlook
Transaction Summary
Cash Flow Assumptions And Analysis
Scenario Analysis
Sovereign Risk
Counterparty Risk
Surveillance Analysis
Appendix
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Table Of Contents (cont.)
Related Criteria
Related Research
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New Issue: Jupiter Mortgage No.1 PLC
Ratings Detail
Ratings
Class Rating*
Amount
(mil. £)
Initial credit
enhancement (%)§ Interest† Step-up margin
Step-up
date
Legal final
maturity
A AAA (sf) 2,327.031 20.00 Compounded daily
SONIA plus 0.80%
Compounded daily
SONIA plus 1.20%
January
2024
July 2060
B-Dfrd AA+ (sf) 178.453 13.75 Compounded daily
SONIA plus 1.40%
Compounded daily
SONIA plus 2.10%
January
2024
July 2060
C-Dfrd AA (sf) 42.829 12.25 Compounded daily
SONIA plus 1.70%
Compounded daily
SONIA plus 2.55%
January
2024
July 2060
D-Dfrd AA- (sf) 49.967 10.50 Compounded daily
SONIA plus 1.90%
Compounded daily
SONIA plus 2.85%
January
2024
July 2060
E-Dfrd A (sf) 57.105 8.50 Compounded daily
SONIA plus 2.50%
Compounded daily
SONIA plus 3.50%
January
2024
July 2060
F-Dfrd BBB+ (sf) 49.967 6.75 Compounded daily
SONIA plus 3.00%
Compounded daily
SONIA plus 4.00%
January
2024
July 2060
G-Dfrd BBB- (sf) 42.829 5.25 Compounded daily
SONIA plus 3.50%
Compounded daily
SONIA plus 4.50%
January
2024
July 2060
H-Dfrd BB- (sf) 35.691 4.00 Compounded daily
SONIA plus 3.75%
Compounded daily
SONIA plus 4.75%
January
2024
July 2060
I-Dfrd B- (sf) 42.828 2.50 Compounded daily
SONIA plus 4.00%
Compounded daily
SONIA plus 5.00%
January
2024
July 2060
Z NR 28.552 0.00 0.00% 0.00% January
2024
July 2060
X-Dfrd CCC (sf) 42.828 0.00 Compounded daily
SONIA plus 4.00%
Compounded daily
SONIA plus 4.00%
January
2024
July 2060
S1 certificate NR N/A N/A 0.08% N/A January
2024
July 2060
S2 certificate NR N/A N/A N/A 0.08% January
2024
July 2060
Y certificate NR N/A N/A N/A N/A N/A July 2060
VRR loan
notes
NR 152.531 N/A N/A N/A N/A July 2060
*Our ratings address timely receipt of interest and ultimate repayment of principal for the class A notes, and the ultimate payment of interest and
principal on the other rated notes. §As a percentage of 95% of the total pool balance for the class A to X-Dfrd notes. †This is the credit
enhancement based on subordination plus the reserve fund, expressed as a percentage of collateral amount including loans with past maturities.
N/A--Not applicable. NR--Not rated. SONIA--Sterling Overnight Index Average.
Transaction Summary
• Jupiter Mortgage No.1 PLC is a static RMBS transaction that securitizes a portfolio of £3.005 billion owner-occupied
and buy-to-let (BTL) mortgage loans secured on properties in the U.K.
• At closing, the seller (Jupiter Seller Ltd.) purchased the beneficial interest in the portfolio from the sponsor (Citibank
N.A., London Branch), who in turn acquired the portfolio from the original sellers, NRAM Ltd. and Bradford and
Bingley PLC (B&B). The issuer used the issuance proceeds to purchase the full beneficial interest in the mortgage
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loans from the seller. The issuer granted security over all of its assets in favor of the security trustee.
• The pool is well seasoned. Most of the loans are first-lien U.K. owner-occupied and BTL residential mortgage loans,
however the pool includes a small percentage of retirement interest-only loans and lifetime mortgage loans. The
borrowers in this pool may have previously been subject to a county court judgement (CCJ; or the Scottish
equivalent), an individual voluntary arrangement, a bankruptcy order, may be self-employed, have self-certified their
incomes, or were otherwise considered by banks and building societies to be nonprime borrowers. The loans are
secured on properties in England, Wales, Scotland, and Northern Ireland, and were mostly originated between 2003
and 2009.
• Of the pool, which is current on payments, 1.07% of the mortgage loans by current balance are currently granted
payment holidays due to COVID-19. There is high exposure to interest-only loans in the pool at 92.8%, and 9.3% of
the mortgage loans are currently in arrears greater than (or equal to) one month.
• A general reserve fund provides liquidity, and principal can be used to pay senior fees and interest on the notes
subject to various conditions. A further liquidity reserve fund is funded to provide liquidity support to the class A
and B-Dfrd notes.
• B&B is the servicer in this transaction, and Computershare Mortgage Services Ltd. (CMS) is the delegated servicer.
• There are no rating constraints in the transaction under our counterparty, operational risk, or structured finance
sovereign risk criteria. We consider the issuer to be bankruptcy remote.
• Our credit and cash flow analysis and related assumptions consider the transaction's ability to withstand the
potential repercussions of the COVID-19 outbreak, namely, higher defaults and longer recovery timing. Considering
these factors, we believe that the available credit enhancement is commensurate with the assigned ratings. As the
situation evolves, we will update our assumptions and estimates accordingly.
The Credit Story
Strengths Concerns and mitigating factors
The pool is well-seasoned with a weighted-average
seasoning of more than 10 years for almost the full pool.
In our view, more-seasoned performing loans exhibit
lower risk profiles than less-seasoned loans.
The borrowers in this pool have previously been subject to a prior county court
judgement (13.1%), an individual voluntary arrangement, a bankruptcy order (1.6%),
may be self-employed (48.60%), have self-certified their incomes (28.0%), or were
otherwise considered by banks and building societies to be nonprime borrowers. We
consider that loans with these characteristics are more likely to exhibit a higher
historical default probability than otherwise-similar loans. We have addressed these
features accordingly in our credit analysis.
The pool has a low current indexed loan-to-value (LTV)
ratio of 63.1%, which is most likely to incur lower loss
severities if the borrower defaults.
There is a high proportion (92.8%) of interest-only loans in the pool. We understand
when the maturity of a loan is reached, but it is yet to be redeemed, in some cases,
the servicer does not automatically classify a loan as default, but where possible,
allows for short term extensions for the borrower to refinance or sell without the
need for litigation. In order to address this point, we have run an additional sensitivity
in our cash flow analysis to test a 12-month maturity extension for the interest-only
loans in the pool.
The application of principal proceeds is fully sequential.
Credit enhancement can therefore build up over time for
the rated notes, enabling the capital structure to withstand
performance shocks.
Of the pool,9.3% comprises loans in arrears, including 6.4% in over 90 days'
delinquency. We reflected these features in our foreclosure frequency assumptions.
The transaction features a non-amortizing general reserve,
which was fully funded at closing and will provide credit
enhancement and liquidity for the collateralized notes to
meet revenue shortfalls. The transaction can also use
principal receipts to pay senior fees and interest on the
notes subject to various conditions. The transaction also
features an amortizing liquidity reserve fund to provide
liquidity to the class A and B-Dfrd notes.
There is a minor exposure to lifetime mortgage loans (0.002%) and retirement
interest-only loans (0.120%). In our analysis, we have not given any credit to lifetime
mortgage loans and have only given to credit to interest received prior to legal final
of the transaction on the retirement interest-only loans. This is because the principal
repayment on these loans is based on the borrowers' mortality rate, which could be
after the transaction's legal maturity.
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New Issue: Jupiter Mortgage No.1 PLC
The Credit Story (cont.)
Strengths Concerns and mitigating factors
Any losses on the portfolio and any use of principal as
available revenue receipts would result in the issuer
recording an amount in the principal deficiency ledger
(PDL). This will provide additional protection to the notes
as excess spread can be used to pay down the notes.
Of the portfolio, 1.84% of the loans have either passed their maturity or are currently
under a repossession/foreclosure process. In our analysis, we have assumed these
loans to be defaulted and have applied a stressed rating specific recovery rate.
Under our base-case scenario, there is a positive excess
spread providing credit enhancement in this transaction,
given 33% of the pool has exposure to loans based on a
standard variable rate (SVR) with weighted-average
interest rate close to 4.4% on these loans.
We received a 99/1 pool audit report for this transaction and there are significant
missing files in the audit. Most of the errors related results are explained by the fact
that different originators were consolidated in one entity throughout the years and
documents could have been lost or databases not synchronized correctly. We
consider the loans' high seasoning as one of the mitigants to fraud risk as the loans
have been outstanding for more than 10 years. However, we have applied
adjustments to our weighted-average foreclosure frequency (WAFF) given the errors
in the report.
B&B is the administrator in the transaction; however, the
servicing is delegated to CMS. Since CMS also provides
third-party servicing, it has well-established and fully
integrated servicing systems and policies.
As the beneficial title seller is a special-purpose entity, it has limited resources to
meet its financial obligations and is not the originator of the mortgages. It will not
have any buy-back obligation for the ineligible receivables, but rather an obligation to
indemnify the issuer. We consider the seller's responsibility for breaching the package
to be weaker than what we normally see in U.K. RMBS transactions. We have
therefore increased our WAFF estimates to address this risk.
Given the presence of legacy collateral including
interest-only loans and loans based on SVR, the
transaction features indemnity payments from the seller to
the issuer against any successful claims from the
borrowers with respect to mis-selling of mortgages with,
among other things, payment protection insurance,
discretionary rate, interest-only, and any arrears charges.
There is no swap to hedge the mismatch between the interest rate paid under the
loans (SVR, bank base rate, or three-month LIBOR) and the interest rate paid under
the notes (daily SONIA). We have therefore stressed for basis risk in our analysis. To
cover the risk of reduction in standard variable rate we have applied a haircut in our
analysis.
The Financial Conduct Authority's (FCA) guidance provides that lenders could not
start or continue repossession due to the COVID-19 pandemic until October 2021.
This could delay the recoveries from defaulted mortgage loans. We have tested the
sensitivity of extended recovery timing assumptions by nine months in our analysis
and the ratings remain robust. Of the borrowers in the pool who are currently not in
arrears, 2.4% have been granted payment holidays as of the cut-off date. We have
considered these factors in our credit analysis. Our cash flow analysis also
incorporates liquidity stresses to capture the risk of payment holidays.
Originator
The pool comprises well-seasoned mortgage loans currently held with UK Asset Resolution Ltd. (UKAR). UKAR was
established on Oct. 1, 2010, and is facilitating the orderly wind down of NRAM's and B&B's government-owned
businesses, including its subsidiary Mortgage Express Ltd. At inception, UKAR's book had a balance about £115 billion,
which is now down by almost 90%.
The pool comprises three sub-pools, as outlined in the table below.
Table 1
Pool Composition
Sub-pool 1 Sub-pool 2 Sub-pool 3
Originator NRAM PLC and
Legal & General
Bank Ltd.
Bradford and Bingley PLC, Mortgage Express Ltd.,
GMAC-RFC Ltd., Kensington Mortgage Company Ltd.,
Close Brothers Ltd., and Keystone Buy to Let Mortgages
Ltd.
Bradford and Bingley PLC, Mortgage
Express Ltd., GMAC-RFC Ltd., and
Kensington Mortgages Group Ltd.
Original seller NRAM PLC Bradford and Bingley PLC Bradford and Bingley PLC
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New Issue: Jupiter Mortgage No.1 PLC
Table 1
Pool Composition (cont.)
Sub-pool 1 Sub-pool 2 Sub-pool 3
Occupancy
type
Buy to let Buy to let Owner occupied
Percentage of
pool
33% 23% 44%
The original sellers, NRAM and B&B, are wholly owned subsidiaries of UKAR.
Servicing
B&B is the interim servicer for the loans, with a delegation to CMS to act on B&B's behalf. Following the sale of the
assets from the original sellers to the sponsor and then on to the issuer, B&B will continue to be the servicer for the
pool's loans until the effective date as the interim servicer. After the effective date, B&B will be appointed as the
transaction's long-term servicer. The interim servicing agreement gives the issuer the right to appoint a third-party
servicer if the transfer doesn't take place.
CMS is an Australian global finance company, which has permission from the Financial Conduct Authority (FCA) to
administer regulated mortgage contracts in the U.K. via its Computershare Loan Servicing (CLS) division. CLS is now
the U.K.'s leading third-party mortgage administrator, servicing prime, nonconforming, BTL, flexible, and
lifetime/reverse mortgages. In June 2016, CLS won the mandate to manage approximately £30 billion on UKAR's
behalf, absorbing 1,700 former UKAR staff (for more details, see "Servicer Evaluation: Computershare Loan Services
(HML)," published on Feb. 3, 2020).
We reviewed CMS' servicing and default management processes and are satisfied that they are capable of performing
their functions in the transaction. The company has an experienced leadership team with good experience in the
financial services industry, and we view its compliance and risk management structure as robust. We are comfortable
that there are adequate staff levels and supportive information technology systems to continue to effectively service
the loans in the pool.
CMS confirmed that it has a business continuity plan in place to manage the COVID-19 outbreak. Technology
solutions enable the staff to have remote access to the servicing platform, and personnel can keep interacting with
customers via phone calls, text messages, and the website. Borrowers can make payments via Interactive Voice
Response, such as by telephone with credit cards, or online through a web portal if they have a direct debit account.
Collateral
We have received loan-level data as of January 2020. We have also received historical performance data (since 2008)
for the loans in pool. The quality of data provided is in line with our standards. We received a 99/1 pool audit report
for this transaction and there are significant missing files in the audit. Most of the errors related results are explained
by the fact that different originators were consolidated in one entity throughout the years and documents could have
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New Issue: Jupiter Mortgage No.1 PLC
been lost or databases not synchronized correctly. We consider the loans' high seasoning as one of the mitigants to
fraud risk as the loans have been outstanding for more than 10 years. However, we have applied adjustments to our
WAFF given the errors in the report.
The beneficial title seller is a special-purpose entity. It did not originate the loans, and it has limited resources to meet
its financial obligations. While the seller provides certain representations and warranties on the assets, it has no
buy-back obligation. It will indemnify the issuer against any breach in assets in the warranties, but its ability to meet
this obligation depends on the ability to settle a similar claim against the sponsor. We consider the seller's
responsibility for breaching the package to be weaker than what we normally see in U.K. RMBS transactions, and we
have increased the originator adjustment to incorporate this risk.
Table 2
Collateral Key Features*
Jupiter Mortgage No.1 PLC
Chester B1 Issuer
PLC Durham Mortgages B PLC
Pool cut-off date Jan. 31, 2020 Dec. 31, 2019 May 23, 2018
Jurisdiction U.K. U.K. U.K.
Originators NRAM Ltd., Legal & General Bank Ltd.,
Bradford & Bingley PLC, Mortgage Express
PLC, GMAC–RFC Ltd., Kensington Mortgage
Company Ltd., and Close Brothers Ltd.
NRAM Ltd. Bradford & Bingley PLC, Mortgage
Express PLC, GMAC–RFC Ltd.,
Kensington Mortgage Company Ltd.,
and Close Brothers Ltd.
Principal outstanding of the
preliminary pool (bil. £)
3.01 1.71 2.29
Number of properties 23,632 18,718 23,901
Average loan balance (£) 120,129 93,866 96,188
Weighted-average indexed
current LTV ratio (%)
63.10 71.30 69.56
Weighted-average original LTV
ratio (%)
82.07 98.40 81.14
Weighted-average seasoning
(months)
172.00 156.00 139.10
Top two regional concentration
(by balance)
South East incl. London (38.5%) and North
West (14.6%)
South East incl.
London (19.1%) and
North West (15.8%)
South East England incl. London
(34.6%), and North West (12.3%)
Buy-to-let (%) 54.00 5.60 100.00
More than one CCJ (%) 13.00 17.70 7.76
Interest only and part and part
(%)
92.80 43.80 95.32
Jumbo valuations (%) 4.40 0.50 8.72
Current arrears greater than or
equal to one month (%)
9.30 11.00 0.81
*Calculations are according to S&P Global Ratings' methodology. LTV--Loan-to-value.
Asset description
The portfolio comprises first-lien U.K. BTL mortgage loans (54%) and owner-occupied loans (46%), and has a
weighted-average current indexed LTV ratio of 63.1% and a weighted-average original LTV of 82.07%. The pool is
well seasoned with a weighted-average seasoning of 14.3 years and the assets are primarily concentrated in London
and the South-East (38.5%), but no regions breach our concentration limits (see charts 2 and 3).
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New Issue: Jupiter Mortgage No.1 PLC
The pool also contains loans that have had at least one county court judgement (13%) and borrowers that have
previously been declared bankrupt (1.6%).
Chart 1
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New Issue: Jupiter Mortgage No.1 PLC
Chart 2
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New Issue: Jupiter Mortgage No.1 PLC
Chart 3
There is a high proportion (92.8%) of interest-only loans in the pool. We understand when the maturity of a loan is
reached, but it is yet to be redeemed, in some cases, the servicer does not automatically classify a loan as default, but
where possible, allows for short-term extensions for the borrower to refinance or sell without the need for litigation.
Additionally, the FCA issued temporary guidance, which came into force on Oct. 31, 2020, that makes clear that firms
should allow borrowers with interest-only loans that have matured recently or are set to mature soon, and who are
up-to-date with payments, to continue making interest payments and delay repayment of the capital on their mortgage
up to Oct. 31, 2021. Therefore, in our analysis, we have run an additional sensitivity in our cash flow analysis to test a
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New Issue: Jupiter Mortgage No.1 PLC
12-month maturity extension of interest-only loans in the pool.
Chart 4
Asset performance
As part of our analysis, we have considered previous performance data for each loan in the pool.
The pool has 9.3% of loans in arrears as calculated in accordance with our methodology. We have not incorporated
into our analysis the amount of loans that have had restructuring arrangements and that have been current in the last
36 months, considering the limited portion in the combined pool. Chart 5 below shows arrears at NRAM and B&B
book level. After the financial crisis, the low interest rate environment and the servicing policies contributed to an
arrears reduction. The subsequent rise in arrears in 2017 contributed to various securitizations in which the assets
were positively selected. In terms of asset performance, the level of arrears in the portfolio is high as compared to our
U.K BTL index, but lower than the U.K nonconforming index. There was a marginal increase in arrears recently due to
the pandemic, but arrears have remained largely stable.
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New Issue: Jupiter Mortgage No.1 PLC
Chart 5
Payment holidays
The pool comprises loans that can take payment holidays, subject to certain underlying conditions. A borrower may
apply to the servicer for a payment holiday--or if the borrower has made a certain number of consecutive payments, it
could take a payment holiday.
Furthermore, 1.07% of the borrowers in the pool who are not in arrears have currently taken COVID-19-related
payment holidays as of the cut-off date. The monthly payments for these borrowers are deferred to a later date, while
interest continues to accrue. Borrowers that are under payment holidays won't be classified as in arrears if they were
previously up to date on payments and any arrears balance is frozen for borrowers who were in arrears when availing
of the payment holiday.
In our view, given the reserve fund's and the liquidity reserve's size, and the notes' deferable nature (excluding the
class A notes), the structure can withstand liquidity shocks resulting from payment holidays based on the current level
of payment holidays.
However, some of the borrowers that are currently under payment holidays could move into arrears and/or default on
their mortgage loan. We have incorporated sensitivity stresses to our foreclosure frequency assumptions to factor this
risk. The ratings assigned are able to withstand these stresses.
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Credit Analysis And Assumptions
We have applied our global residential loans criteria to the pool in order to derive the WAFF and the weighted-average
loss severity (WALS) at each rating level.
The WAFF and the WALS assumptions increase at each rating level because notes assigned a higher rating should be
able to withstand a higher level of mortgage defaults and loss severity. We base our credit analysis on the loans, the
properties, and the associated borrowers' characteristics.
Table 3
Portfolio WAFF And WALS
Rating level WAFF (%) WALS (%) Credit coverage (%)
Base foreclosure frequency component for an archetypal U.K.
mortgage loan pool (%)
AAA 33.06 43.43 14.36 12.00
AA 26.73 36.08 9.64 8.10
A 23.33 23.46 5.47 6.10
BBB 19.94 16.37 3.26 4.20
BB 16.19 11.97 1.94 2.20
B 15.32 8.68 1.33 1.75
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.
Chart 6
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New Issue: Jupiter Mortgage No.1 PLC
Macroeconomic And Sector Outlook
Table 4
U.K. Housing Market Statistics
2017 2018 2019 2020f 2021f
Nominal house price, % change y/y 4.6 2.4 1.6 (1.6) (1.9)
Real GDP, % change 1.8 1.3 1.5 (9.7) 7.9
Unemployment rate 4.4 4.1 3.8 4.8 6.3
Sources: S&P Global Ratings, Eurostat, Organisation for Economic Cooperation and Development, Department for Communities and Local
Government, Office for National Statistics. Y/Y--Year on year. f--Forecast.
Based on our macroeconomic forecasts, we revised the 'B' foreclosure frequency assumptions in our global residential
loans criteria for the U.K. archetypal pool to 1.75% from 1.50% (see "Residential Mortgage Market Outlooks Updated
For 13 European Jurisdictions Following Revised Economic Forecasts," published on May 1, 2020).
We have also considered the transaction's ability to withstand additional liquidity stresses and extended foreclosure
timing assumptions. The assigned ratings remain robust under these stresses.
S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus
pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the
world. Widespread immunization, which will help pave the way for a return to more normal levels of social and
economic activity, looks to be achievable by most developed economies by the end of the third quarter. However,
some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these
assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see
our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates
accordingly.
Given the dynamic/fluid circumstances associated with the coronavirus pandemic, we will continually evaluate and
update this disclaimer as warranted.
Transaction Summary
Chart 7
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At closing, the issuer purchased the beneficial interest in the portfolio of U.K. residential mortgages from the seller
(Jupiter Seller), using the proceeds from the issuance of the notes, certificates, and VRR loan notes.
The issuer is an English special-purpose entity, which we consider to be bankruptcy remote. We analyzed its corporate
structure in line with our legal criteria.
Interest will be paid quarterly on the interest payment dates, beginning in April 2021. The rated notes pay interest
equal to compounded daily SONIA plus a class-specific margin, with a further step up margin following the optional
call date in January 2024. All of the notes will reach legal final maturity in July 2060.
Indemnity payments
Given the presence of legacy collateral including interest-only loans and loans based on SVR, the transaction features
indemnity payments from the seller to the issuer against any successful claims from the borrowers regarding
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mis-selling of mortgages with, among other things, payment protection insurance, discretionary rate, interest-only, and
any arrears charges.
VRR loan notes
The size of the VRR loan notes represents 5% of the collateral. On every interest payment date (IPD), revenue and
principal collections (after deducting senior expenses) are split in a 95/5 proportion between noteholders and
certificate holders, on one hand, and the VRR loan noteholders, on another. Then the funds are distributed within each
group in accordance with the payment waterfall. The VRR loan noteholders do not have separate ability to accelerate
the amounts owed in respect of VRR loan notes, or to direct the note trustee or the security trustee in the enforcement
of the security. Our analysis does not address the issuer's ability to make interest and principal payments on VRR loans
notes.
Class S1 and S2 certificates
The class S1 and S2 certificates represent senior deferred consideration payable by the issuer to the seller. The class
S1 certificates are entitled to receive 0.08% of the current collateral balance prior to the step-up date, and no payments
thereafter. The class S2 certificates are entitled to receive 0.10% of the current collateral balance after the step-up date,
and no payments beforehand. Given that the payments due on the class S1 and S2 certificates rank pari passu with the
class A notes interest, they are addressed in our cash flow model.
Deferral of interest
Under the transaction documents, interest payments on all classes of rated notes (excluding the class A notes) can be
deferred. Consequently, any deferral of interest on the class B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, G-Dfrd, H-Dfrd,
I-Dfrd, and X-Dfrd notes would not constitute an event of default. Deferred interest will accrue interest and will
become due and payable on the legal final maturity date.
Our ratings address the timely payment of interest and the ultimate payment of principal on the class A notes and the
ultimate payment of interest and principal on the other rated notes.
General reserve fund and liquidity reserve fund
A non-amortizing reserve fund was funded at closing. It comprises two elements:
• The liquidity reserve fund, which was funded at closing to 1.5% of the class A and B-Dfrd notes' outstanding balance
and will amortize in line with the class A and B-Dfrd notes. It is available to cover shortfalls on the senior expenses,
payments on the class S1 and S2 certificates, and interest payments on the class A and B notes.
• The general reserve fund, which was funded at closing to 1.5% of the class A to Z-Dfrd notes' initial balance less the
amount standing to the credit of the liquidity reserve fund on each interest payment date. As the class A and B-Dfrd
notes amortize, the general reserve fund will build up to provide additional credit enhancement to the notes still
outstanding.
Principal to pay interest
In high-delinquency scenarios, there may be liquidity stresses, whereby the issuer would not have sufficient revenue
receipts to pay interest due on senior fees, payments due on the class S1 and S2 certificates, or the most-senior class of
notes. To mitigate this risk the issuer can use any existing principal receipts. The use of principal to pay interest would
result in the registering of a PDL and may reduce the credit enhancement available to the notes.
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Principal deficiency ledgers
The PDL comprises 10 subledgers, one for each of the rated asset-backed classes of notes.
Amounts will be recorded on the PDL if the portfolio suffers any losses and if the transaction uses principal as available
revenue receipts or to fund the reserve fund.
Revenue priority of paymentsTable 5
Priority of Payments
Revenue priority of payments Principal priority of payments
Senior fees. Interest shortfalls on senior and servicer fees as well as the most senior notes
outstanding by using principal addition amounts.
Senior servicer fees. Class A notes' principal.
Other senior fees. Class B-Dfrd notes' principal.
Issuer profit amounts. Class C-Dfrd notes' principal.
Pro rata, the class A notes' interest and class S1 and S2
certificates payments.
Class D-Dfrd notes' principal.
Class A notes' PDL. Class E-Dfrd notes' principal.
Class B-Dfrd notes' interest. Class F-Dfrd notes' principal.
Liquidity reserve fund replenishment Class G-Dfrd notes' principal.
Class B–Dfrd notes' PDL. Class H-Dfrd notes' principal.
Class C-Dfrd notes' interest. Class I-Dfrd notes' principal.
Class C-Dfrd notes' PDL. UKAR Ltd. indemnity payments under the Customer Protection Undertaking.
Class D-Dfrd notes' interest. Class Z notes' principal.
Class D-Dfrd notes' PDL. Class Y certificates payment.
Class E-Dfrd notes' interest.
Class E-Dfrd notes' PDL.
Class F-Dfrd notes' interest.
Class F-Dfrd notes' PDL.
Class G-Dfrd notes' interest.
Class G-Dfrd notes' PDL.
Class H-Dfrd notes' interest.
Class H-Dfrd notes' PDL.
Class I-Dfrd notes' interest.
Class I-Dfrd notes' PDL.
General reserve fund replenishment
Class Z notes' PDL.
Class X notes' interest.
Class X notes' principal.
Excess to certificate holders.
UKAR Ltd. indemnity payments under the Customer
Protection Undertaking.
Class Y certificates payment.
PDL--Principal deficiency ledger.
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Cash Flow Assumptions And Analysis
We stress the transaction's cash flows to test the credit and liquidity support that the assets, subordinated tranches,
and cash reserve provide.
We apply these stresses to the cash flows at all relevant rating levels. In our stresses on the class A notes, all notes
must pay full and timely principal and interest. Our ratings on the class B-Dfrd to X-Dfrd notes address the payment of
ultimate principal and interest.
Our standard cash flow analysis indicates that the available credit enhancement for the class E-Dfrd, F-Dfrd, G-Dfrd,
and H-Dfrd notes is commensurate with higher ratings than those currently assigned. However, the ratings on these
notes also reflect their ability to withstand the potential repercussions of the COVID-19 outbreak, including higher
defaults and longer foreclosure timing stresses, also considering their relative positions in the capital structure, and the
potential increased exposure to potential tail-end risk.
The class I-Dfrd notes face minor shortfalls under our standard cashflow analysis at the 'B' rating level. However, in
our view, based on cashflow results in a steady state scenario (applying actual level of fees and prepayments), and
given the available credit enhancement, payment of ultimate interest and principal on the class I-Dfrd notes is not
dependent upon favorable business, financial, and economic conditions (see "Criteria For Assigning 'CCC+', 'CCC',
'CCC-', And 'CC' Ratings," published on Oct. 1, 2012). We have therefore assigned our 'B- (sf)' rating to this class of
notes.
Due to structural features, payment of interest and principal on the class X-Dfrd notes relies on excess spread. In our
standard cash flow analysis and in the steady state scenario these notes face shortfalls at all rating levels. In our view,
given no credit enhancement and the results of our cashflow analysis, payment of interest and principal on the class
X-Dfrd notes is dependent upon favorable business, financial, and economic conditions (see "Criteria For Assigning
'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," published on Oct. 1, 2012). We have therefore assigned our 'CCC (sf)' rating
to this class of notes.
Interest rate risk
Interest on the notes is equal to daily SONIA plus class-specific margins that step up following the optional redemption
date. The underlying collateral is linked to the Bank of England base rate (BBR), London Interbank Offered Rate
(LIBOR), or to an SVR. There is basis risk for the underlying collateral that is linked to BBR, LIBOR, and SVR, and the
transaction does not benefit from a swap to mitigate this risk. As a result, we stress the historical timing mismatch
between the index paid on the assets and that paid on the liabilities.
When modeling the yield on SVR loans, we considered the servicer's SVR-setting policy. The SVR rate is set at the
lower of the three-month SONIA plus 2.50% and the SVR cap. The servicer calculates the SVR cap monthly based on
the lending rate by the largest mortgage lenders in the U.K., and equal to the third-highest rate on the respective
determination date. The SVR cap is set to address the customer protection law. Based on the historically observed
behavior of SVR cap versus SONIA, we applied basis risk stress to the floor rate of SONIA plus 2.50% in our cash flow
model.
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Spread compression
The asset yield on the pool can decrease if higher-paying assets default or prepay. We have taken this into account in
our cash flow analysis by assuming at a 'AAA' level that the portfolio's weighted-average margin might compress by
0.11%.
Commingling risk
Borrowers pay into a collection account held with National Westminster Bank PLC in the legal title holder's name. All
amounts in the collection account are swept to the transaction account on the next business day.
If the legal title holder were to become insolvent, mortgage collection amounts in the collection account may become
part of the legal titleholder's bankruptcy estate. In order to mitigate this risk, there is a declaration of trust is in place
over the collection account. To address the risk of the collection bank's insolvency, the transaction documents contain
replacement language in line with our counterparty criteria.
Although we believe that the above mechanisms (downgrade language and declaration of trust) mitigate against loss of
collections, we have considered that collections could be delayed in the event of an insolvency. In our analysis we
have therefore applied a liquidity stress of one month of collections.
Fees
Contractually, the issuer is obliged to pay periodic fees to various parties providing services to the transaction such as
servicers, trustees, and cash managers, among others. We have accounted for these in our analysis. In particular, we
have applied a stressed servicing fee of 0.40% (the higher of 1.5x actual fees and 0.40% per year) to account for the
potential increase in costs to attract a replacement servicer, and additionally 0.05% of the legal titleholder fee in line
with our global residential loans criteria. We have modelled other one-off fees, such as the cost of replacing the bank
account, which totals about £100,000.
Setoff risk
There are no employee loans or deposit setoff exposure in the transaction because the seller and legal title holder is
not a deposit-taking institution.
Risk arising from further advances, product switches, and redraws
The issuer must honor any flexible features included in the underlying mortgage contracts, subject to the servicer
confirming the borrower satisfying the relevant conditions. Flexible features include redraws, further advances,
payment holidays, and porting.
Most loans in this pool are flexible loans, which can overpay and then at some point in the future redraw the overpaid
amount. In our view, based on historical data the risks related to set-off due to redraw is limited.
There is exposure to loans with more than one loan part per property due to further advances. In our credit analysis,
we have accounted for further advances already provided to calculate the loan's current LTV ratio and the original
LTV ratio. If there are further advances in future, we will consider them during our surveillance.
The pool comprises loans that can take payment holidays for up to six months, subject to certain underlying
conditions. A borrower may apply to the servicer for a payment holiday--or if the borrower has made a certain number
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of consecutive payments, it could take a payment holiday. Any such payment holiday would be added to the loan's
current balance. We have tested the effect of payment holidays in our cash flow analysis by stressing it on our analysis
and it does not affect our assigned ratings.
Default timing and recoveries
We have used the WAFF and WALS derived under our credit analysis as inputs in our cash flow analysis.
At each rating level, the WAFF specifies the total balance of the mortgage loans we assume to default over the
transaction's life. Defaults are applied on the assets' outstanding balance as of the closing date. We simulate defaults
following two paths (i.e., one front-loaded and one back-loaded) over a six-year period. During the recessionary period
within each scenario, we assume 25% of the expected WAFF is applied annually for three years.
Table 6
Default Timings For Front-Loaded And Back-Loaded Default Curves
Year after closing Front-loaded defaults (% of WAFF per year) Back-loaded defaults (% of WAFF per year)
1 25.0 5.0
2 25.0 10.0
3 25.0 10.0
4 10.0 25.0
5 10.0 25.0
6 5.0 25.0
WAFF--Weighted-average foreclosure frequency.
We assume recoveries (1-WALS) on defaulted assets to be received 18 months after default for owner-occupied
properties and 12 months after default for BTL properties. Foreclosure costs are estimated at 3% of the repossession
value and £5,000.
Our loss severities are based on loan principal and do not give any credit to the recovery of interest accrued on the
loan during the foreclosure process.
Delinquencies
To simulate the effect of delinquencies on liquidity, we model a proportion of scheduled collections equal to one-third
of the WAFF (in addition to assumed foreclosures reflected in the WAFF) to be delayed. We apply this in each of the
first 18 months of the recession, and we assume a full recovery of these delinquencies to occur 36 months after they
arise.
Prepayments
To assess the impact on excess spread and the absolute level of defaults in a transaction we model both high and low
prepayment scenarios at all rating levels.
Table 7
Prepayment Assumptions
High Low
Pre-recession 30.0 4.0
During recession 3.0 3.0
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Table 7
PrepaymentAssumptions (cont.)
High Low
Post-recession 30.0 4.0
Interest rates
We modeled two interest rate scenarios in our analysis: up and down.
We derived the stressed interest rate curves for compounded SONIA by subtracting a spread of 0.25% from the LIBOR
curves we model. There has been a close relationship between the backward-looking compounded SONIA and the
forward-looking LIBOR determined for the same period. However, since SONIA does not include the various risk
premiums reflected in LIBOR, the former has generally been lower. The spread adjustment applied to the interest rate
reflects the lower SONIA rates historically observed.
Summary
In combination, the default timings, recession timings, interest rates, and prepayment rates described above give rise
to eight different scenarios at each rating level.
Table 8
RMBS Stress Scenarios
Total number of scenarios Prepayment rate Interest rate Default timing
8 High and low Up and down Front-loaded and back-loaded
Scenario Analysis
We analyzed the effect of a moderate stress on our WAFF assumptions and its ultimate effect on our ratings on the
notes. We ran two stress scenarios to demonstrate the rating transition of a note, and the results are in line with our
credit stability criteria.
Sovereign Risk
Our long-term unsolicited credit rating on the U.K. is 'AA'. Therefore, our ratings in this transaction are not constrained
by our structured finance sovereign risk criteria.
Counterparty Risk
The issuer is exposed to Citibank, London Branch as the transaction account provider, and Barclays Bank PLC as the
servicers' collection account. The documented replacement mechanisms for the account providers adequately mitigate
the transaction's exposure to counterparty risk in line with our counterparty criteria.
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Table 9
Supporting Ratings
Institution/role Ratings Replacement trigger
Collateral posting
trigger
National Westminster Bank PLC as collection
account provider
A/Negative/A-1 BBB/A-2 N/A
Citibank N.A., London Branch as transaction
account provider*
A+/Stable/A-1 A/A-1 N/A
*Rating derived from the rating on the parent entity. There are no counterparty constraints on the ratings on the notes in this transaction. The
replacement language in the documentation is in line with our current counterparty criteria (see "Counterparty Risk Framework: Methodology
And Assumptions," published on March 8, 2019). For a full list of transaction participants, please refer to the appendix.
Surveillance Analysis
We will maintain surveillance on the transaction until the notes mature or are otherwise retired. To do this, we will
analyze regular servicer reports detailing the performance of the underlying collateral, monitor supporting ratings, and
make regular contact with the servicer to ensure that it maintains minimum servicing standards and that any material
changes in the servicer's operations are communicated and assessed.
Various factors could lead us to lower our ratings on the notes, such as increasing foreclosure rates in the underlying
pool and changes in the pool composition. We have analyzed the effect of increased defaults by testing the sensitivity
of the ratings to two different levels of movements.
Under our scenario analysis, the ratings on the notes in both scenarios would not suffer a rating transition outside of
that considered under our credit stability criteria.
We also conducted additional sensitivity analysis to assess the impact of, all else being equal, increased WAFF and
WALS on our ratings on the notes. For this purpose, we ran eight scenarios by either increasing stressed defaults
and/or reducing expected recoveries as shown in the tables below.
Table 10
Sensitivity Stresses
WALS
WAFF 1.0x 1.1x 1.3x
1.0x Base Case Sensitivity 3 Sensitivity 4
1.1x Sensitivity 1 Sensitivity 5 Sensitivity 7
1.3x Sensitivity 2 Sensitivity 6 Sensitivity 8
WALS--Weighted-average loss severity. WAFF--Weighted-average foreclosure frequency.
The results of the above sensitivity analysis indicate deterioration of the ratings on the notes (see table 11).
Table 11
Sensitivity Analysis Results
Class Base case 1 2 3 4 5 6 7 8
A AAA AAA AAA AAA AAA AAA AA+ AA+ AA+
B-Dfrd AA+ AA AA AA AA AA AA- AA- A+
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Table 11
Sensitivity Analysis Results (cont.)
Class Base case 1 2 3 4 5 6 7 8
C-Dfrd AA AA AA- AA AA- AA- A+ A+ A
D-Dfrd AA- AA- A AA- A+ A+ A A A
E-Dfrd A A A A A A A- A- BBB+
F-Dfrd BBB+ BBB+ BBB BBB+ BBB BBB+ BBB BBB BBB-
G-Dfrd BBB- BBB- BB+ BBB- BB+ BB+ BB BB+ BB
H-Dfrd BB- BB- B BB- BB- BB- B B B-
I-Dfrd B- N/A N/A N/A N/A N/A N/A N/A N/A
X-Dfrd CCC N/A N/A N/A N/A N/A N/A N/A N/A
N/A--Not applicable.
Appendix
The full list of transaction parties (excluding those providing supporting ratings) are listed below.
Transaction Participants
Role Participant
Arranger Citibank Europe PLC, U.K. Branch
Seller Jupiter Seller Ltd.
Servicer and interim servicer Bradford & Bingley PLC
Back-up servicer facilitator CSC Capital Markets UK Ltd.
Legal title holders NRAM Ltd., Bradford & Bingley PLC, Mortgage Express Ltd., Mortgage Express (No. 2), and Scotlife
Home Loans (No.2) Ltd.
Cash manager Citibank, N.A., London Branch
Corporate services provider CSC Capital Markets UK Ltd.
Agent bank and principal paying
agent
Citibank N.A., London Branch
Security trustee U.S. Bank Trustees Ltd.
VRR loan note holder Citibank N.A., London Branch
Related Criteria
• Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of
Structured Finance Securities, Dec. 22, 2020
• Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates In Structured Finance, Oct.
18, 2019
• Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8,
2019
• Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities:
Methodology And Assumptions, Jan. 30, 2019
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• Criteria | Structured Finance | RMBS: Global Methodology And Assumptions: Assessing Pools Of Residential
Loans, Jan. 25, 2019
• Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
• Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance
Transactions, Oct. 9, 2014
• General Criteria: Methodology Applied To Bank Branch-Supported Transactions, Oct. 14, 2013
• General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
• General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
• General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
• Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28, 2009
Related Research
• European Structured Finance Outlook H2 2020, July 28, 2020
• EMEA Structured Finance Surveillance Chart Book, June 29, 2020
• Investment-Grade U.K. And Dutch RMBS Ratings Likely To Remain Resilient To COVID-19 Effects, June 29, 2020
• How European ABS And RMBS Servicers Are Managing COVID-19 Disruption And Payment Holidays, June 4,
2020
• Government Job Support Will Stem European Housing Market Price Falls, May 15, 2020
• Residential Mortgage Market Outlooks Updated For 13 European Jurisdictions Following Revised Economic
Forecasts, May 1, 2020
• Economic Research: Europe Braces For A Deeper Recession In 2020, April 20, 2020
• COVID-19 May Be A Litmus Test For European RMBS Calls, April 15, 2020
• Will Mortgage Payment Suspensions Related To COVID-19 Affect European RMBS?, March 13, 2020
• European ABS And RMBS: Assessing The Credit Effects Of COVID-19, March 3, 2020
• Servicer Evaluation: Computershare Loan Services (HML), Feb. 3, 2020
• 2017 EMEA RMBS Scenario And Sensitivity Analysis, July 6, 2017
• Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic
Factors, Dec. 16, 2016
• European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic
Factors, Dec. 16, 2016
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