DBRS Upgrades Ratings of Glacier Securities Limited Series 2011-2

DBRS Ratings Limited (“DBRS”) has reviewed the Series 2011-2 Notes issued by Glacier Securities Limited (the “Issuer”) and taken the following rating actions:

• Confirms the rating of the Class A Notes at AAA (sf);
• Upgrades the rating of the Class B Notes to AA (high) (sf) from AA (sf);
• Upgrades the rating of the Class C Notes to AA (sf) from A (sf);
• Upgrades the rating of the Class D Notes to A (sf) from BBB (sf).

Glacier Securities Limited Series 2011-2 (“Glacier”) is a euro-denominated re-securitisation program of a first-lien UK non-conforming transaction named Eurosail 2007-6NC plc (“Eurosail") issued by Lehman Brothers (“Lehman”) and originated by Southern Pacific Mortgages Ltd., Preferred Mortgages Ltd., London Mortgage Company, and Alliance & Leicester PLC which closed in November 2007. In Eurosail, the collateral pays in Sterling and the bonds paid in Euro, where Lehman was acting as a cross currency swap counterparty. Following the bankruptcy of Lehman in 2008, the transaction was left unhedged. The collateral of Glacier consists of a portion of each of the Class A1 (paid in full), Class A2 and Cass A3 Notes (“Eurosail Class A”) Notes issued from the Eurosail transaction which initially closed in September 2011.

On 05 March 2014, following a restructuring of Eurosail, the exposure to the forex rate risk has been removed from the underlying transaction by converting the euro-denominated bonds into Sterling. The conversion occurred at a spot rate of GBP 0.821 to EUR 1.000. Hence the re-collateralization of Eurosail has been done through write-downs of the most junior Classes of Notes. However since the Glacier bonds are euro-denominated the forex exposure remains within the rated transaction. This risk is partially hedged by American currency EUR call/GBP put options which limit the exposure to any weakening of GBP versus EUR as those currency options give a right to the Issuer to convert GBP into EUR at a pre-determined strike rate.

Simultaneously, the Noteholders of the Eurosail bonds approved the sale of the remaining claim against Lehman to the best bidder resulting of the termination of the cross currency swap in Eurosail. In total, the proceeds of the termination amounted to USD 90.6 million (GBP 54 million or 62.5% of the claim) which has been used to pay down the Eurosail Class A Notes and also create a liquidity reserve of GBP 1.8 million. Additionally the Cash Reserve Fund of the underlying transaction has been reduced from GBP 9.3 million to GBP 1.8 million (the proceeds have been used to pay down the junior classes).

Confirmation of the rating of the Class A Notes and Upgrade Class B, Class C and Class D Notes are based upon the following analytical considerations, as described more fully below:

• Underlying Eurosail portfolio performance, in terms of the level of delinquencies and defaults, as of the 13 March 2014 payment date;
• Updated Portfolio Defaults, Loss Given Defaults and Expected Losses estimates for the remaining Eurosail pool;
• Current available credit enhancement to Class A, Class B, Class C and Class D Notes to cover the Expected Losses, respectively at the AAA (sf), AA (high) (sf), AA (sf) and A (sf) rating level;
• Conversion of the sale receipts from the Lehman claim into GBP 54 million;
• Re-collaterisation of the Eurosail transaction in sterling.

As of the 13 March 2014 payment date, the current 90+ delinquency ratio as a percentage of the current balance of the Eurosail portfolio was 22.13% and the 120+ delinquency ratio was 19.39%. The cumulative default ratio (defined as property being repossessed) was 12.58% of the original collateral balance.

Credit enhancement for the rated Glacier Notes (as a percentage of the collateral balance) consists of subordination of the respective subordinate Classes and excess spread, if available. Credit enhancement for each Class of Notes has increased following the cashflows received from the sale of the Lehman claim to stand at 87.78%, 75.05%, 66.31% and 57.57%, respectively for the Class A, Class B, Class C and Class D Notes.

Bank of New York Mellon - London Branch (the “Account Bank”) holds the Treasury Account for the Glacier transaction. The DBRS public rating of the Account Bank complies with the threshold for the Account Bank given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions. Additionally Barclays Bank plc is acting a currency option provider to the Glacier transaction.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.
This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include investor reports provided by Investec Bank plc (the “Sponsor”) and investor reports provided from Acenden Limited (the “Servicer” of the Eurosail portfolio). DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 26 February 2013, when DBRS confirmed the rating of AAA (sf), AA (sf), A (sf), BBB (sf), respectively to the Class A, Class B, Class C and Class D Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
• The base case PD and LGD of the current pool of mortgages for the Issuer are 36.23% and 41.82%, respectively. The corresponding levels at the AAA (sf) rating level are 66.39% and 61.62%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A Notes would be expected at remain at AAA (sf).

Class A Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD, expected rating of AAA (sf)
• 50% increase in PD, expected rating of AAA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AA (high) (sf)
• 50% increase in LGD, expected rating of AA (high) (sf)
• 25% increase in PD, expected rating of AA (high) (sf)
• 50% increase in PD, expected rating of AA (high) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class C Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AA (sf)
• 50% increase in LGD, expected rating of AA (sf)
• 25% increase in PD, expected rating of AA (sf)
• 50% increase in PD, expected rating of AA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class D Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of A (sf)
• 50% increase in LGD, expected rating of A (sf)
• 25% increase in PD, expected rating of A (sf)
• 50% increase in PD, expected rating of A (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Kali Sirugudi
Initial Rating Date: 08 November 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Dylan Cissou
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at http://www.dbrs.com/about/methodologies

• Legal Criteria for European Structured Finance Transactions
• Master European Structured Finance Surveillance Methodology
• Operational Risk Assessment for European Structured Finance Servicers
• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Derivative Criteria for European Structured Finance Transactions
• Unified Interest Rate Model for European Securitisations