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Fitch Affirms Leek Finance Number Nineteen; Removes Class M RWN
December 22, 2016 / 5:04 PM / 9 months ago

Fitch Affirms Leek Finance Number Nineteen; Removes Class M RWN

(The following statement was released by the rating agency) LONDON, December 22 (Fitch) Fitch Ratings has affirmed the ratings on Leek Finance Number Nineteen Plc and removed Class M from Rating Watch Negative as follows: Class A2a (XS0294479778) affirmed at 'AAAsf'; Outlook Stable Class A2b (XS0294480602) affirmed at 'AAAsf'; Outlook Stable Class A2c (XS0294482483) affirmed at 'AAAsf'; Outlook Stable Class Ma (XS0294483614) affirmed at 'AA+sf'; Outlook Stable Class Mc (XS0294484349) affirmed at 'AA+sf'; Outlook Stable Class Ba (XS0294484778) affirmed at 'AAsf'; Outlook Stable Class Bc (XS0294485072) affirmed at 'AAsf'; Outlook Stable Class Ca (XS0294485403) affirmed at 'AAsf'; Outlook Negative Class Cc (XS0294486476) affirmed at 'AAsf'; Outlook Negative Class Da (XS0294486559) affirmed at 'AAsf'; Outlook Negative Class Dc (XS0294486716) affirmed at 'AAsf'; Outlook Negative The transaction is a securitisation of non-conforming UK residential mortgages originated primarily between 2006 and 2008 by Platform Funding Limited, a wholly owned subsidiary of The Co-operative Bank PLC (B/Stable/B). Fitch had placed the Class M notes on Rating Watch Negative and downgraded classes B to D in June 2016 following the downgrade of the UK's Long-Term Issuer Default Rating (see: "Fitch Downgrades SF Deals with Direct UK Sovereign Exposure"). KEY RATING DRIVERS Stable Asset Performance Late-stage arrears (loans delinquent for over three months) are at 4.7%, outperforming the Fitch All Non-Conforming 3 months+ index, which is at 8.9%. This reflects the roughly 50/50 split between prime and non-prime loans in the transaction. Credit Enhancement Including UK Gilts The issuer purchased gilts following the restructuring in 2011 to increase the credit enhancement available to the rated notes. The gilts provide 38.6% credit enhancement to each tranche. Fitch capped classes C and D at the gilt rating (AA/Negative/F1+) as a significant portion of the credit enhancement is dependent on the gilts, which results in excessive counterparty exposure. This view might change when the maturity date of the gilts, June 2018, approaches. Classes A, M and B are not subject to this constraint due to adequate levels of credit enhancement excluding the gilts. The transaction also benefits from a reserve fund and a liquidity facility supporting all tranches, and which are funded at their target level of 4.40% and 4.37% of the aggregate notes balance, respectively. Unhedged Basis Risk About 70% of the loans in the transaction track the Bank of England base rate (BBR). The mismatch between the BBR and three-month LIBOR payable on the notes is unhedged. Fitch has reduced credit given to the excess spread for the proportion of BBR loans, to account for the basis risk. The reduction at the 'AAAsf' level is 200bp for the first year, and 50bp for each subsequent year. Interest-Only Concentration The transactions have a material concentration of interest-only loans maturing within a three-year period during the lifetime of the transaction. Fitch carried out a sensitivity analysis for all transactions assuming a 50% default probability for these loans in the 'AAA' scenario. No rating action was deemed necessary as a result of the interest-only loan maturity concentration. Commingling and Payment Interruption Risks Mitigated National Westminster Bank Plc (BBB+/Stable/F2) is the collection account bank for the transaction. There are daily sweeps from NatWest to the external GIC account held by Bank of New York Mellon (AA/Stable/F1+), which has an 'F1+' trigger. Mortgage receipts are spread throughout the month. However, as payments may not be made by direct debit, one month's commingling analysis has been factored in. The loss sized in the analysis does not have any effect on the ratings. Capita Asset Services (UK) Limited is servicing the notes. The risk of an interruption in payments to noteholders due to the servicer's default is sufficiently mitigated by the 60-day back-up servicer agreement with Homeloan Management Limited and the fact that the bonds can withstand non-payment of at least two payment dates. RATING SENSITIVITIES Some of the non-senior tranches are exposed to UK sovereign risk resulting from the credit enhancement provided by the gilts. As the gilts' maturity is approaching, exposure to the sovereign risk may cease to be a constraining factor for the next rating review. The high proportion of non-conforming and interest-only loans in the portfolios means the transaction is exposed to both relatively weak asset performance and balloon risk at the point of maturity of the interest-only loans. Adverse economic conditions may lead to higher unemployment and lower property values. This may affect borrowers' ability to meet payments on the loans or recoveries due to the issuer. Weak asset performance may erode the credit enhancement available to the notes, leading to negative rating actions. USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that affected the rating 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 pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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 The Co-operative Bank as at 30 August 2016 - Transaction reporting provided by The Co-operative Bank as at 30 August 2016 - Additional transaction details provided by The Co-operative Bank as at 30 August 2016 MODELS <a href="https://www.fitchratings.com/jsp/creditdesk/ToolsAndModels.faces?context=2 &detail=135"> ResiEMEA. <a href="https://www.fitchratings.com/web_content/pages/rmbs/emea-rmbs-surveillance -model.htm"> EMEA RMBS Surveillance Model. <a href="https://www.fitchratings.com/web_content/pages/sf/emea-cash-flow-model.htm ">EMEA Cash Flow Model. Contacts: Lead Surveillance Analyst Laurent Bernhard Analyst +44 20 3530 1487 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Alessandro Pighi Co-Head of EMEA RMBS +44 20 3530 1794 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016) here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 18 Jul 2016) here Criteria Addendum: UK Residential Mortgage Assumptions (pub. 22 Jul 2016) here Criteria for Country Risk in Global Structured Finance and Covered Bonds (pub. 26 Sep 2016) here EMEA RMBS Rating Criteria (pub. 29 Nov 2016) here Global Structured Finance Rating Criteria (pub. 27 Jun 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016977 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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