Fitch Takes Multiple Rating Actions on E-MAC NL Transactions
KEY RATING DRIVERS
Later Vintages Worse Performers
The E-MAC NL series has high proportions of interest-only loans, ranging between 72% (E-MAC 2005-I) and 87% (E-MAC 2008-IV) of the respective current portfolios. However, the characteristics and performance can be classified into two groups, the earlier issuance ((E-MAC 2004-I, E-MAC 2004-II, E-MAC2005-I, E-MAC2005-III, E-MAC 2006-II) and those that closed later (E-MAC 2006-III, E-MAC 2007-I, E-MAC2007-III, E-MAC2007-IV, E-MAC 2008-1 and E-MAC 2008-IV). In particular, the later 2007 and 2008 issuance comprise more adverse portfolios with comparably higher loan-to-value (LTV) ratios and which were originated predominantly in 2007, near the peak of the market.
As a result, as of end-July 2015 loans in arrears by three months or more range between 0.5% (E-MAC 2004-I) and 2% (E-MAC 2008-IV), which is well above the average late-stage arrears index for Dutch prime transactions (0.8%). The later 2006-2008 transactions have reported a worse performance with higher arrears levels and larger losses.
In its analysis, Fitch has taken into account the performance to date and the build-up of credit enhancement in the transactions. The downgrades of class D in E-MAC 2004-II, E-MAC 2005-I and E-MAC 2006-II are driven by insufficient credit enhancement and weaker performance. The Outlooks of these tranches are now Stable.
E-MAC 2008-IV has reported the highest arrears and largest losses as a result of a high percentage of interest-only loans that were originated at the peak of the market. Nevertheless, the build-up of the credit enhancement in the portfolio in the past 12 months, in combination with a stable performance, has led to a revision of the Outlook on the mezzanine tranches to Stable.
Conversely, the Outlook on class C of E-MAC 2006-II, class B of E-MAC 2006-III and E-MAC 2007-I has been revised to Negative, reflecting a potential downgrade if the credit enhancement does not build up in line with collateral performance.
All 11 transactions of the series allow for pro-rata amortisation of the notes, but with the exception of E-MAC 2004-I, all notes are currently amortising sequentially. Given the possibility of pro-rata amortisation in these deals over the long term, in its analysis, Fitch has considered the associated concentration risks that would be heightened with a diminishing pool size. In the agency's view, the three-months plus trigger of 2% that would result in an increase in the required level of reserve fund in each of the 11 transactions is fairly tight. Additionally, the resulting uplift in the size of the reserve fund is presently viewed as being adequate to mitigate such risks.
Redemption of Uncollateralised Tranches
The class E notes in E-MAC 2004-II, 2005-I, 2005-III, 2006-II, 2007-I and 2007-III are uncollateralised tranches that were used at transaction close to establish the respective reserve funds. The repayment of the class E principal ranks junior in the waterfall after the replenishment of the respective reserve funds and payments of subordinated extension interest. However, in accordance with the transaction documentation, at the final legal maturity funds released from the reserve can only be used for the redemption of the class E notes, bypassing the unpaid subordinated extension interest deficiency ledger.
The junior tranches that are on Negative Outlook could be downgraded, if arrears and associated foreclosures exceed those of Fitch's expectations.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.
Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transaction's initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.
Overall, Fitch's assessment of the 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 CMIS Nederland as at 1 July 2015
-Transaction reporting provided by CMIS Nederland as at 27 July 2015
-Loan enforcement details provided by CMIS Nederland as at 27 July 2015
The models below were used in the analysis. Click on the link for a description of the model.
EMEA RMBS Surveillance Model.