Fitch Rates Malt Hill No.1 plc 'AAA(EXP)sf'/Stable
OREANDA-NEWS. Fitch Ratings has assigned Malt Hill No.1 plc's notes an expected rating as follows:
Class A: 'AAA(EXP)sf', Outlook Stable
Class Z: not rated
This transaction will be a securitisation of prime buy-to-let (BTL) residential mortgages originated in England and Wales by Godiva Mortgages Limited (Godiva), a wholly owned subsidiary of Coventry Building Society (CBS, 'A'/Stable). The beneficial title seller, UK Mortgages Corporate Funding Designated Activity Company (UK DAC), purchased the assets from Godiva in November 2015.
The assignment of the final rating is contingent on the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
BTL Exposure to Rate Rises
The portfolio consists entirely of BTL loans for which Fitch has applied an increase to the frequency of foreclosure based on its criteria. This is because while BTL loans have performed well in the current environment, they performed worse than owner-occupied properties in a stressed environment on the back of the recent housing recession.
Underwriting and Operational Framework
Godiva is the intermediary lending arm of CBS. Godiva focuses predominantly on prime low- LTV BTL lending to non-member borrowers in the intermediary market, whereas CBS focuses on the prime owner-occupied residential space, to borrowers who are predominantly members of CBS.
This is a prime portfolio with a weighted average (WA) seasoning of nine months, a low WA original LTV (OLTV) of 65.2%, an indexed WA current LTV (CLTV) of 64.7% and a WA interest-coverage-ratio (ICR) of 90.4% (calculated using an interest rate assumption of 4%, plus the stabilised margin on the underlying mortgages). The proportion of loans concentrated in Greater London and the South East is 70.5%.
Hedging in Place
A balance-guaranteed swap will be in place to hedge the fixed-rate loans (99.99%) on the underlying mortgages against note payments linked to three-month Libor (3ML). The swap will be provided by BNP Paribas ('A+'/Stable), the creditworthiness of which meets Fitch's counterparty criteria.
Limited Capacity for Repurchase
The beneficial title seller is not Fitch rated and may have limited resources to repurchase any mortgages if there is a breach of the representations and warranties (R&W) given to the issuer. This is a weakness, but there are mitigating factors, such as the alignment of interest, that make the likelihood of a R&W breach remote.
Material increases in the frequency of defaults and loss severity on defaulted receivables that produce losses greater than Fitch's base-case expectations may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'A+sf' from 'AAAsf'.
More detailed model-implied ratings sensitivity can be found in the presale report, which is available at www.fitchratings.com.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
UK DAC provided Fitch with a loan-by-loan data template. Cumulative loan book losses, cumulative static 90+ delinquency data, dynamic arrears data, and mortgage book repossession data were received from Godiva. Fitch considers that the data available for the analysis is adequate.
Fitch conducted a review of a small targeted sample of Godiva's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by UK DAC as at 31 March 2016
-Loan performance data provided by Godiva as at 31 December 2015
-Loan enforcement details provided by Godiva as at 31 December 2015