(The following statement was released by the rating agency)
-- We have taken various rating actions based on the application of our U.K. RMBS and 2010 counterparty criteria.
-- Mortgages No 7 is a U.K. nonconforming RMBS transaction, consisting of first-ranking mortgages secured over U.K. residential properties
Standard & Poor's Ratings Services today lowered and removed from CreditWatch negative our credit ratings on Mortgages No 7 PLC's class A2, B, C, and D residential mortgage-backed securities (RMBS) notes. At the same time, we affirmed and removed from CreditWatch negative our rating on the class E notes (see list below).
Today's rating actions follow our credit and cash flow analysis of the most recent transaction information that we have received (as of January 2012). Our analysis reflects the application of our U.K. RMBS criteria (see 'U.K. RMBS Methodology And Assumptions,' published on Dec. 9, 2011). In addition, we have applied our 2010 counterparty criteria, given our November 2011 downgrades of the transaction counterparties (see 'Barclays Bank PLC Ratings Lowered To 'A+/A-1' From 'AA-/A-1+' On Bank Criteria Change; Outlook Stable,' published on Nov. 29, 2011, and 'Counterparty And Supporting Obligations Methodology And Assumptions,' published on Dec. 6, 2010).
We previously placed our ratings on all of the notes in the transaction on CreditWatch negative for credit-related reasons on Dec. 12, 2011, following the application of our U.K. RMBS criteria (see 'Ratings On 764 Tranches In 119 U.K. RMBS Transactions Placed On CreditWatch Negative After U.K. RMBS Criteria Update').
We also previously placed our ratings on the class A2 and B notes on CreditWatch negative for counterparty reasons, following a breach of the documented remedy period (see '122 Ratings In 43 European RMBS Transactions Placed On CreditWatch Negative After Expiry Of Counterparty Remedy Periods,' published on Feb. 7, 2012). These CreditWatch placements were the result of the lowering of our long-term counterparty rating on the account bank and liquidity facility provider, Barclays Bank PLC, to 'A+' from 'AA-' on Nov. 29, 2011.
CREDIT AND CASH FLOW ANALYSIS
Due to the deleveraging of the pool, available credit enhancement for all classes of notes has more than tripled since closing. The transaction is currently paying sequentially because the documented 90+ day delinquency trigger is greater than the pro rata trigger of 20% (currently 25.36%). The reserve fund remains fully funded, and there is excess spread in the transaction.
Delinquencies have decreased slightly since our last review of the transaction to 32.39% from 32.71% (see 'S&P Resolves 516 European Structured Finance Counterparty Criteria CreditWatch Placements,' published on July 19, 2011); total arrears have increased to 32.93% from 32.71%. The decrease in 90 day arrears by 22 percentage points and the decrease in 30- to 60-day arrears by 63 percentage points since our last review is behind the decrease in total arrears; 60- to 90-day arrears have increased by 57 percentage points. We expect severe arrears (i.e., 90+ day arrears) to remain at their current levels due to the downside risks for nonconforming borrowers. These risks include inflation, weak economic growth, high unemployment, and fiscal tightening. However, overall delinquencies remain comparable with those that we have observed in other similar transactions.
In our analysis, our credit adjustments have led to a higher weighted-average foreclosure frequency, and a higher weighted-average loss severity, due to an increase in our market-value decline assumptions. Overall, these factors have led to an increase in the required credit enhancement at each rating level, as per our 2011 U.K. RMBS criteria.
The liquidity facility documentation does not comply with our 2010 counterparty criteria.
We would ordinarily analyze the transaction both with, and without, the benefit of the liquidity facility in place. In situations where the notes require the benefit of the facility, we cap the ratings on those notes at the issuer credit rating (ICR) on the liquidity facility provider--in this instance, Barclays Bank (A+/Stable/A-1). However, because the bank account has breached a documented rating trigger and Barclays Bank has not taken any remedial action, we have therefore capped our ratings on all classes of notes at the ICR on Barclays Bank. For this reason, we have given every class of notes the benefit of the facility.
According to our credit stability analysis, the maximum projected deterioration we would expect at each rating level for time horizons of one year and three years, under moderate stress conditions, are in line with our credit stability criteria (see 'Methodology: Credit Stability Criteria,' published on May 3, 2010).
We have lowered to 'A+ (sf)' and removed from CreditWatch negative our ratings on the class A2 and B notes, following our cash flow analysis and the application of our 2010 counterparty criteria.
We have lowered to 'A- (sf)' and removed from CreditWatch negative our rating on the class C notes based on the results of our cash flow analysis.
We have lowered to 'BBB- (sf)' and removed from CreditWatch negative our rating on the class D notes for credit reasons.
We have affirmed at 'B+ (sf)' and removed from CreditWatch negative our rating on the class E notes based on our credit and cash flow analysis.
Mortgages No 7 is backed by a pool of nonconforming U.K. residential mortgages originated by Mortgages No.1 Ltd.
STANDARD & POOR'S 17G-7 DISCLOSURE REPORT
The Standard & Poor's 17g-7 Disclosure Report included in this credit rating report is available at .
RELATED CRITERIA AND RESEARCH
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- 122 Ratings In 43 European RMBS Transactions Placed On CreditWatch Negative After Expiry Of Counterparty Remedy Periods, Feb. 7, 2012
-- Ratings On 305 Tranches In 120 European RMBS Transactions Placed On CreditWatch Negative After Bank Rating Actions, Dec. 21, 2011
-- Ratings On 764 Tranches In 119 U.K. RMBS Transactions Placed On CreditWatch Negative After U.K. RMBS Criteria Update, Dec. 12, 2011
-- U.K. RMBS Methodology And Assumptions, Dec. 9, 2011
-- Barclays Bank PLC Ratings Lowered To 'A+/A-1' From 'AA-/A-1+' On Bank Criteria Change; Outlook Stable, Nov. 29, 2011
-- Request For Comment: Counterparty And Supporting Obligations Methodology And Assumptions--Expanded Framework, Nov. 21, 2011
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- S&P Resolves 516 European Structured Finance Counterparty Criteria CreditWatch Placements, July 19, 2011
-- Counterparty And Supporting Obligations Update, Jan. 13, 2011
-- Counterparty And Supporting Obligations Methodology And Assumptions, Dec. 6, 2010
-- Methodology: Credit Stability Criteria, May 3, 2010
Mortgages No 7 PLC
GBP757.5 Million Mortgage-Backed Floating-Rate Notes
Ratings Lowered And Removed From CreditWatch Negative
A2 A+ (sf) AAA (sf/Watch Neg
B A+ (sf) AA- (sf)/Watch Neg
C A- (sf) A+ (sf)/Watch Neg
D BBB- (sf) BBB+ (sf)/Watch Neg
Rating Affirmed And Removed From CreditWatch Negative
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