DBRS Assigns AAA Rating to Guaranteed Senior Unsecured Debt of Northern Rock Asset Management plc

DBRS has today assigned a rating of AAA to the Guaranteed Senior Unsecured Debt of Northern Rock Asset Management plc (NRAM). The trend on the rating is Stable. This rating follows the implementation of the Northern Rock plc Transfer Order 2009 (the Transfer Order), which effects the legal and capital restructuring of Northern Rock plc (Northern Rock or the Company) as of 1 January 2010.

Today’s rating action reflects the extension of the government guarantee provided by HM Treasury on the senior unsecured debt held by Northern Rock Asset Management (NRAM) effective 1 January 2010. The replacement guarantee arrangement continues to safeguard certain liabilities of NRAM following the restructuring of the Company. The guarantee will remain in place until the wind down of NRAM is completed. The AAA rating on the Guaranteed Senior Unsecured Debt of NRAM reflects DBRS’s internal assessment of the United Kingdom and its ability to honour this guarantee.

The Transfer Order affects the restructuring of the Company. On 1 January 2010, Northern Rock will be separated into two companies, a new savings and mortgage bank, which will retain the Northern Rock plc name and the legal continuation of the Company, renamed Northern Rock Asset Management plc (NRAM), which will hold and service the majority of the existing residential mortgage book, which totals approximately GBP 50 billion. Additionally, certain assets and liabilities will be transferred to the new savings and mortgage bank, which will hold and service all customer savings accounts (approximately GBP 19 billion currently) and approximately GBP 10 billion of residential mortgages. The bank will be capitalised by HM Treasury with GBP 1.4 billion of paid-up share capital and will offer new savings products and new mortgage lending.

DBRS anticipates assigning ratings to the bank subsequent to completing its analysis of the bank’s business plan, capital adequacy, level of any government support, funding profile and its longer-term earnings generation ability following the restructuring. Moreover, DBRS in its analysis will assess the impact of certain compensatory measures agreed to by the U.K. Government and European Commission on the bank’s business over the near-term. Among these measures were a limit on new lending volumes through 2011, a cap on retail deposit gathering through 2011 and a restriction on mortgage rate offerings.

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Notes:
All figures are in GBP unless otherwise noted.

The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.