S&P: Various Rating Actions Taken In U. K. Nonconforming RMBS Transaction Newgate Funding's Series 2006-3 Following Review
Today's rating actions follow our credit and cash flow analysis of the transaction using information from the August 2016 investor report and August 2016 loan-level data. Our analysis reflects the application of our U. K. residential mortgage-backed securities (RMBS) criteria and our current counterparty criteria (see "U. K. RMBS Methodology And Assumptions," published on Dec. 9, 2011, and "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).
In our opinion, the performance of the loans in the collateral pool has improved since our Sept. 13, 2013 review (see "Various Rating Actions Taken In Five Newgate Funding U. K. Nonconforming RMBS Transactions Following Review"). Total delinquencies have decreased to 26.2% from 35.6%, 90+ days delinquencies to 18.7% from 27.5%, and repossessions to 0.5% from 1.4%. Although the abovementioned decreases are in line with the evolution observed in our U. K. nonconforming RMBS index, Newgate Funding's series 2006-3 pool has historically performed worse than the other transactions in our index (see "U. K. RMBS Index Report Q2 2016: Collateral Performance Improves, But Downside Risks Increase," published on Sept. 20, 2016).
Prepayments have remained stable since our previous review. As of March 2016, the prepayment rate in this transaction was about 4.7%, which is lower than the 8.1% observed in our index.
Since our previous review, our credit assumptions have decreased at all rating levels, due to a lower weighted-average foreclosure frequency (WAFF) and a lower weighted-average loss severity (WALS).
The lower arrears levels and greater proportion of the loans in the pools receiving seasoning credit benefitted our WAFF calculations. Our WALS assumptions have decreased at all rating levels. The transaction has benefitted from the decrease in the weighted-average current loan-to-value ratios.
Rating WAFF WALS (%) (%)AAA 43.76 39.40AA 37.82 32.76A 32.46 22.21BBB 27.99 16.22BB 23.28 12.38B 21.22 9.26
Credit enhancement levels have increased for all rated classes of notes since our previous review. The notes benefit from a liquidity facility and reserve funds. The facilities are not amortizing as the respective cumulative loss triggers have been breached.
The structure started amortizing pro rata in May 2016 because all of the pro rata triggers are currently met. We have considered this in our cash flow analysis.
Our credit and cash flow analysis indicates that the available credit enhancement for the class Da, Db, and E notes is commensurate with the currently assigned ratings. We have therefore affirmed our ratings on these classes of notes.
We consider the available credit enhancement for the class Ba, Bb, and Cb notes to be commensurate with higher ratings than those currently assigned. We have therefore raised to 'BBB+ (sf)' from 'BBB - (sf)' our ratings on the class Ba and Bb notes, and to 'BB (sf)' from 'B+ (sf)' our rating on the class Cb notes.
In our credit and cash flow analysis, we consider the available credit enhancement for the class A3a, A3b, and Mb notes to be commensurate with higher ratings than those currently assigned. However, the liquidity facility and bank account provider (Barclays Bank PLC; A-/Negative/A-2) breached the 'A-1+' downgrade trigger specified in the transaction documents, following our lowering of its long - and short-term ratings in November 2011 (see "Barclays Bank PLC Ratings Lowered To 'A+/A-1' From 'AA-/A-1+' On Bank Criteria Change; Outlook Stable," published on Nov. 29, 2011). Because no remedy actions were taken following our November 2011 downgrade, our current counterparty criteria cap the maximum potential rating on the notes in this transaction to our 'A-' long-term issuer credit rating on Barclays Bank. We have therefore affirmed our 'A - (sf)' ratings on the class A3a, A3b, and Mb notes.
Newgate Funding's series 2006-3 is a U. K. nonconforming RMBS transaction with collateral comprising a pool of first-ranking mortgages over freehold and leasehold owner-occupied properties. Based on loan-level data provided for August 2016, the collateral pool comprises 24.0% first-time buyer loans and 57.3% self-certified loans.