Fitch Withdraws Equity Release Funding (No.4)'s Ratings
Class A2 (ISIN XS0197423345): 'AAsf' on RWE; rating withdrawn
Class B (ISIN XS0197423774): 'Asf' on RWE; rating withdrawn
Class C (ISIN XS0197424236): 'BBBsf' on RWE; rating withdrawn
Class D (ISIN XS0197424400): 'BBBsf' on RWE; rating withdrawn
KEY RATING DRIVERS
The withdrawal follows the discovery of incorrect assumptions used by Fitch, that when corrected, result in inconsistencies with the agency's counterparty criteria ("Counterparty Criteria for Structured Finance and Covered Bonds" and its "Derivative Addendum"). Specifically, the assumptions relate to swap breakage costs that may fall due in the priority of payments ahead of noteholders. Correcting for the assumptions leads to uncertainty with respect to the determination of the swap breakage costs. Due to this uncertainty Fitch is unable to gain sufficient comfort to maintain the ratings.
On 13 June 2016, Fitch placed the ratings of ERF4 on Rating Watch Evolving (RWE) following the discovery of model inputs and calculations used in the analysis of the transaction that were potentially inconsistent with the way the transaction actually operated. The model used was initially provided by a third party, and was subsequently modified by Fitch.
Other potential input errors and inconsistencies between the model and the transaction were suspected at the time Fitch placed the ratings on RWE. Following identification of the incorrect assumption related to the swap breakage costs, sufficient comfort could not be gained to maintain ratings for the ERF4 transaction, and further review of the model was halted.
Fitch has therefore not ascertained whether (a) other potential input errors and inconsistencies in the model that were suspected can be confirmed; or (b) there are other additional errors in the model that may have otherwise been detected through further review.
ERF5 Review Ongoing
Notes for Equity Release Funding (No.5) Plc (ERF5) were placed on RWE at the same time as the notes for ERF4. Fitch's review of ERF5 is ongoing and further commentary will be available in due course.