Fitch: No Rating Impact on Mercurio 2012-7 from Cash and Liquidity Reserves Reduction
The transaction is a prime Italian RMBS backed by residential mortgage loans granted by the Italian branch of Barclays Bank Plc (Barclays, A/Stable/F1).
Barclays has amended the transaction documentation to reduce the cash reserve to 3.3% of the initial pool balance, equivalent to EUR262.5m, from 6.0% at closing. The bank has also reduced the liquidity reserve to 1.7% of the initial pool, equivalent to EUR130m, from 2.3% at closing. Fitch understands from the bank that the amendment is necessary to comply with ECB eligibility requirements, according to which the total cash and liquidity reserve support cannot exceed 5% of the initial pool balance. As a result, the cash and liquidity reserve surplus to requirements will amortise, with proceeds to be distributed to the subordinate loans provider on the next payment date.
Fitch estimates that after the cash reserve reduction, the available credit support will decrease to 19.3% from 22.7%, while the available liquidity reserve is adequate to cover payment interruption risk on the rated notes for more than three months in a rising Euribor scenario. Fitch therefore concluded that the amendment has no effect on the creditworthiness of the rated notes because the reduced credit enhancement is adequate to support the ratings given the solid asset performance.