Fitch Affirms 35Tranches of Preferred RMBS Series; Upgrades 1
KEY RATING DRIVERS
Strong Credit Enhancement (CE)
The combination of sequential amortisation and non-amortising reserve funds has led to a substantial build-up in CE available to the most senior notes. Fitch deems the current CE to be sufficient to withstand the 'AAAsf' rating stresses applied in its analysis, As reflected in the affirmations.
The upgrade of the class E notes of Preferred 8 reflects the build-up in CE over the past 12 months, which allows the notes to sustain stresses associated with higher ratings.
Stable Performance
The transactions have reported stable asset performance over the past year. Delinquent loans in arrears by more than three months, excluding loans with properties in possession have decreased to between 18.6% and 21.1% from between 20.1% and 21.6% (PRS 06-1 and PRS 05-2). Although these levels are decreasing they still remain well above the Fitch UK non-conforming index of 9.7%. The build-up in late-stage arrears is driven by the servicer's decision to apply more stringent foreclosure practices. This is also evident from the marginal increase in the outstanding balance of loans associated with properties taken into possession as a proportion of the original collateral balance, which in the past 12 months went up to 11.7% and 16.7% from 11.6% and 16.6% in PRS 8 and PRS 05-2, respectively.
Recovery Expectations Reduced
Fitch has reduced its standard recovery expectations in all transactions based on the recovered amount from properties sold to date. Estimated recovery rates were between 74.5% (PRS 06-1) and 82.7% (PRS 8). Given the performance of the transactions and the strong credit enhancement, the reduction in recoveries had no impact on the ratings.
RATING SENSITIVITIES
The transactions are backed by floating-interest-rate loans. In the current low interest rate environment, borrowers are benefiting from low borrowing costs. An increase in interest rates could lead to performance deterioration of the underlying assets and consequently downgrades of the notes if defaults and associated losses exceed those of Fitch's stresses.
As the reserve fund is the only source of credit enhancement for the class E notes of PRS 8, the rating of the notes is now capped at the Long-term Issuer Default Rating of the account bank (Barclays Bank plc); currently implying a cap of 'A'/Stable.
Fitch published an exposure draft for UK residential mortgage assumptions on 22 September 2015 (https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=871376).
The proposed criteria, if adopted, will lead to smaller loss expectations for all types of mortgage portfolios. As a result, Fitch expects all outstanding UK RMBS and CVB ratings to either be affirmed or upgraded. If the current criteria are updated after considering market feedback, Fitch will review all existing UK RMBS ratings within six months of the new criteria publication.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed 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 pools and the transactions. There were no findings that were material to this 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 pools ahead of the transactions' initial closing. The subsequent performance of the transactions 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 Acenden Mortgage Services Solutions with a cut-off date of 31 August 2015 for all deals.
-Transaction reporting provided by Acenden Mortgage Services Solutions since the close of the deals and until September 2015 for all deals.
-Fitch analysts held an update call with representatives of Acenden Limited to discuss origination and servicing practices in July 2015.
MODELS
The models below were used in the analysis. Click on the link for a description of the model.
The rating actions are as follows:
Preferred Residential Securities 05-1 PLC
Class A2c (ISIN XS0217069656): affirmed at 'AAAsf'; Outlook Stable
Class B1a (ISIN XS0217637213): affirmed at 'AAAsf'; Outlook Stable
Class B1c (ISIN XS0217069813): affirmed at 'AAAsf'; Outlook Stable
Class C1c (ISIN XS0217070076): affirmed at 'AAAsf'; Outlook Stable
Class D1c (ISIN XS0217070829): affirmed at 'BBBsf'; Outlook Stable
Class E (ISIN XS0217071041): affirmed at 'Bsf'; Outlook Stable
Preferred Residential Securities 05-2 PLC
Class A2a (ISIN XS0234203684): affirmed at 'AAAsf'; Outlook Stable
Class A2c (ISIN XS0234204732): affirmed at 'AAAsf'; Outlook Stable
Class B1a (ISIN XS0234207594): affirmed at 'AAAsf'; Outlook Stable
Class B1c (ISIN XS0234208485): affirmed at 'AAAsf'; Outlook Stable
Class C1a (ISIN XS0234209020): affirmed at 'AAsf'; Outlook Stable
Class C1c (ISIN XS0234209459): affirmed at 'AAsf'; Outlook Stable
Class D1c (ISIN XS0234212594): affirmed at 'BBsf'; Outlook Stable
Class E1c (ISIN XS0234213642): affirmed at 'Bsf'; Outlook Stable
Preferred Residential Securities 06-1 PLC
Class A2a (ISIN XS0243656625): affirmed at 'AAAsf'; Outlook Stable
Class A2b (ISIN XS0243704532): affirmed at 'AAAsf'; Outlook Stable
Class A2c (ISIN XS0243663837): affirmed at 'AAAsf'; Outlook Stable
Class B1a (ISIN XS0243655577): affirmed at 'AAAsf'; Outlook Stable
Class B1c (ISIN XS0243665022): affirmed at 'AAAsf'; Outlook Stable
Class C1a (ISIN XS0243658670): affirmed at 'AAsf'; Outlook Stable
Class C1c (ISIN XS0243665964): affirmed at 'AAsf'; Outlook Stable
Class D1a (ISIN XS0243659728): affirmed at 'BBsf'; Outlook Stable
Class D1c (ISIN XS0243666939): affirmed at 'BBsf'; Outlook Stable
Class E1c (ISIN XS0243669529): affirmed at 'Bsf'; Outlook Stable
Class FTc (ISIN XS0243675336): affirmed at 'CCCsf'; Recovery Estimate revised to 75% from 50%
Preferred Residential Securities 8 PLC
Class A1a1 (ISIN XS0198309691): affirmed at 'AAAsf'; Outlook Stable
Class A1a2 (ISIN XS0198313024): affirmed at 'AAAsf'; Outlook Stable
Class A1b (ISIN XS0198313610): affirmed at 'AAAsf'; Outlook Stable
Class A1c (ISIN XS0198318171): affirmed at 'AAAsf'; Outlook Stable
Class B1a (ISIN XS0198318411): affirmed at 'AAAsf'; Outlook Stable
Class B1c (ISIN XS0198318841): affirmed at 'AAAsf'; Outlook Stable
Class C1a (ISIN XS0198319062): affirmed at 'AAAsf'; Outlook Stable
Class C1c (ISIN XS0198319229): affirmed at 'AAAsf'; Outlook Stable
Class D1a (ISIN XS0198319575): affirmed at 'Asf'; Outlook Stable
Class D1c (ISIN XS0198319906): affirmed at 'Asf'; Outlook Stable
Class E (ISIN XS0198320409): upgraded to 'Asf' from 'BBB+sf'; Outlook Stable
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