Fitch Rates Silverstone 2016-1 'AAA(EXP)sf'/Stable
OREANDA-NEWS. Fitch Ratings has assigned Silverstone 2016-1 notes issued by Silverstone Master Issuer plc (the master issuer), expected ratings, as follows:
Class 1A floating-rate note: 'AAA(EXP)sf', Stable Outlook
Class 2A floating-rate note: 'AAA(EXP)sf', Stable Outlook
The assignment of the final ratings is subject to the receipt of final documents conforming to information already received.
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 approximately GBP13bn at 31 December 2015. The expected 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 1 reserve fund (1.65% of the outstanding notes) and the unrated class Z notes provide 27.04% of credit enhancement. Fitch believes this subordination provides sufficient credit and liquidity support for the class A notes in its 'AAAsf' stress scenario.
Low LTV/Seasoned Pool
The trust has a weighted average (WA) seasoning of 107 months, WA sustainable LTV of 67.5% and a WA debt to income of 33.5%. This coupled with a small percentage of loans with adverse credit quality, explains the low 'AAAsf' frequency of foreclosure level used to analyse the pool.
Low-Margin BMR Loans
Eighty-two per cent 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 hair-cut to their margins. This is to account for the mortgage margins being linked to BBR, whereas the note margins are linked to three-month sterling 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 with or better than its master trust peers. The strong performance reflects Nationwide's robust underwriting and servicing processes, which compare favourably with its peers.
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 under a 30% increase in the WA foreclosure frequency along with a 30% decrease in the WA recovery rate the class A notes would maintain a 'AAA(EXP)sf' rating.
More detailed model implied ratings sensitivity can be found in the presale report, which is available at www.fitchratings.com.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from PricewaterhouseCoopers LLP. The due diligence focused on compliance, credit, valuation, the presence of key documents in the loan file and data integrity. Fitch reviewed this information which indicated no adverse findings material to the rating analysis.
Fitch conducted a review of a small targeted sample of Nationwide's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Overall, 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 Nationwide as at 31 December 2015.
-Transaction reporting provided by Nationwide as at 12 January 2016.
-Loan enforcement details provided by Nationwide as at 31 December 2015.
-Loan performance data provided by Nationwide as at 31 December 2015.