Fitch Rates Thrones 2015-1 plc; Outlook Stable
GBP144,550,000 Class A: 'AAAsf', Outlook Stable
GBP30,970,000 Class B: 'AAsf', Outlook Stable
GBP22,120,000 Class C: 'Asf', Outlook Stable
GBP22,120,000 Class D: 'BBBsf', Outlook Stable
GBP13,270,000 Class E: 'BB-sf', Outlook Stable
The transaction is a GBP299m securitisation of non-performing and re-performing UK mortgage loans originated by multiple non-conforming UK lenders (13 in total). The major proportions were originated by Future Mortgages (49.0%), Victoria Mortgages (14.5%) and Heritable (14.0%), and subsequently purchased by Mars Capital.
KEY RATING DRIVERS
Non-performing and Re-performing Loans
The majority of loans in the portfolio (72.1%) have been three-months plus (3m+) in arrears at some point during the past five years; 51.5% have been 3m+ during the past two years and 25.5% of loans in the pool are currently in arrears by more than three months. Given the relatively recent instances of high arrears in the pool, the agency has based its foreclosure frequency assumptions on the worst arrears suffered by each loan in the preceding two-year period.
Detailed Pool Review
Fitch performed an extended review of the mortgage portfolio on account of the high-level of expected losses and the unrated nature of the representations and warranties provider. The review included an extended file review of over 50 loans. In addition, a 100% audit was conducted by a third party on key loan attributes such as legal title, loan balances and valuations. The review showed that in general, the key information was present and no material errors were identified.
Analysis of Claw-back Risk
The pool consists of loans originated from a total of 13 different non-conforming originators, many of which are now insolvent or liquidated. Fitch has reviewed the portfolio acquisition history and relationships between the buying and selling parties. The agency believes the potential risk of assets being clawed-back into the respective insolvency estates is remote.
Mars provided updated drive-by valuations for the majority (85%) of loans in the portfolio. Historic repossession data showed the updated valuations to be more accurate than indexed original valuations. Fitch views the use of the updated valuations as core to its analysis, especially given that the agency expects very high levels of defaults to occur. Fitch used the updated valuations as the basis for deriving its foreclosure frequency and recovery rate assumptions.
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater 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 (WA) foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'BBBsf' from 'AAAsf'
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Mars has provided most of the key fields required for the loan-level analysis. However, it was unable to provide CCJ data for 453 cases and could not provide prior arrears data for a further 464 cases. Where the data was not provided, the agency has assumed that the loans were all set to the highest class of CCJs/prior arrears. This increased the default probabilities for any loans where the data was missing.
The agency typically calculates the sustainable loan-to-value (sLTV) using the balance at the time of the most recent advance and the valuation corresponding to that date. For every loan it has purchased, Mars also conducts a drive-by 'audit' valuation. Given that the portfolio comprises loans from multiple originators and due to the loans being very seasoned, Fitch chose to use the drive-by valuations as the basis for determining the sLTV and the current LTVs in its analysis. The agency has deemed this approach specifically relevant to the Thrones loan pool, on account of the very high foreclosure frequencies and the consequent reliance on recovering proceeds from sold possessions.
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.
The collateral review of the mortgage portfolio also involves reviewing loan-by-loan loss severity information on the originator's sold properties that were taken into possession, during which, the agency determines the originator's experienced loss severity rate and quick sale adjustment (QSA). Fitch received a limited sample of loan-by-loan data on 49 buy-to-let and 47 owner-occupied properties in possession. The calculated QSA was 6.2%, which is far lower than Fitch's criteria assumptions, but this figure is based upon '90-day' drive-by valuations, which are intended to represent value of a property to be sold within 90 days after the date of possession. Given the fairly limited size of the sample provided, the agency assumed a QSA of 10%, which included a cushion.
Overall and together with the assumptions referred to above, 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 Mars as at 6 August 2015
- Loan enforcement details provided by Mars as at 30 June 2015
- Loan performance data provided by Mars as at 31 May 2015
The models below were used in the analysis. Click on the link for a description of the model.
EMEA Cash Flow Model
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class will shortly be available by accessing the appendix that accompanies the initial presale report (see Thrones 2015-1 plc - Appendix, at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.