Fitch Rates Silverstone 2015-1 'AAAsf'/Stable
GBP650,000,000 Class 1A floating-rate notes: 'AAAsf', Stable Outlook
EUR750,000,000 Class 2A1 floating-rate notes: 'AAAsf', Stable Outlook
USD500,000,000 Class 2A2 floating-rate notes: 'AAAsf', Stable Outlook
The master trust property consists of prime residential owner-occupied mortgage loans originated in the UK by Nationwide Building Society (A/Stable/F1) or by another member of the Nationwide group.
The trust property was valued at approximately GBP15.6bn at 31 December 2014. The final ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement, the origination and underwriting procedures used by the originator, the servicing capabilities of Nationwide and the transaction's financial and legal structure.
KEY RATING DRIVERS
The Funding reserve fund (1.48% of the outstanding notes) and the unrated class Z notes (27.22%) provide in aggregate 28.70% of credit enhancement. Fitch believes this subordination provides sufficient credit and liquidity support for the class A notes in its 'AAAsf' stress scenario.
The portfolio consists of 22.2% fast-track loans. Fitch typically increases its default probability for fast-track loans, due to non-verified income. However, Nationwide's arrears performance data shows such fast-track loans generally performed better than non-fast-track loans. Therefore, Fitch did not increase the frequency of foreclosure for these loans.
Low-margin BMR Loans
Around 85% of the loans in the portfolio are base mortgage rate (BMR) loans. Their margin is capped at Bank of England Base Rate (BBR) + 2%. Fitch treats these loans as tracker loans and applies a haircut to their margins. This is to account for the loan margins being linked to BBR, while the note margins are linked to 3M GBP Libor. The hair-cut is 2% for the first 12 months and 0.5% thereafter.
Robust Underwriting, Solid Performance
Nationwide's total mortgage book is one of the stronger-performing books among UK prime lenders in terms of static three-months plus arrears. In addition, the Silverstone trust pool is one of the better-performing UK master trust transactions with arrears, repossessions and losses in line or better than its master trust peers. The strong performance reflects Nationwide's robust underwriting and servicing processes, which also compare favourably with its peers.
Potential Time Subordination
In the case of a non-asset trigger breach the class A notes would be time-subordinated to the other outstanding class A notes of the Silverstone master trust programme, due to their longer final legal maturity in January 2070.
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels larger than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average foreclosure frequency along with a 30% decrease in the weighted average recovery rate would not affect the class A notes' 'AAAsf' rating.
More detailed model implied ratings sensitivity can be found in the presale report, which is available at www.fitchratings.com.
Nationwide provided Fitch with a loan-by-loan data template. The data quality and availability was solid, with no material data field missing.
It is Fitch's opinion that the data available for the rating analysis is of good quality.
To analyse credit enhancement, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.
During a visit to Nationwide's offices Fitch conducted a file review on a small sample of loans from the Silverstone Master Trust. The agency found that the information in the files showed the underwriting practices had been appropriately followed and in general the quality of the records kept was good.
Fitch also reviewed the results of an agreed-upon procedures report conducted on the portfolio. This report checked the accuracy of the data file provided to Fitch for its rating analysis. Some minor errors were reported but they did not affect Fitch's rating analysis.
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for that asset class is available by accessing the appendix that accompanies the new issue report (see Silverstone Master Issuer Plc - Appendix, at www.fitchratings.com).
At closing, Fitch also affirmed the ratings of the outstanding notes from the prior issuance under the Silverstone Master Issuer pls, as follows:
Silverstone Master Issuer plc - Issue 2009-1:
Class A3: affirmed at 'AAAsf'; Outlook Stable
Silverstone Master Issuer plc - Issue 2010-1:
Class A2: affirmed at 'AAAsf'; Outlook Stable
Class A3: affirmed at 'AAAsf'; Outlook Stable
Silverstone Master Issuer plc - Issue 2011-1:
Class 2A: affirmed at 'AAAsf'; Outlook Stable
Class 4A1: affirmed at 'AAAsf'; Outlook Stable
Silverstone Master Issuer plc - Issue 2012-1:
Class 1A: affirmed at 'AAAsf'; Outlook Stable
Class 2A1: affirmed at 'AAAsf'; Outlook Stable
Class 2A2: affirmed at 'AAAsf'; Outlook Stable