DBRS Confirms Ratings on Moorgate Funding 2014-1 Plc

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by Moorgate Funding 2014-1 Plc (the Issuer):

-- Class A1 Notes confirmed at AAA (sf);
-- Class B1 Notes confirmed at AA (sf);
-- Class C1 Notes confirmed at A (low) (sf);
-- Class D1 Notes confirmed at BBB (low) (sf);
-- Class E1 Notes confirmed at B (sf)

The confirmation of the ratings on the Class A1, B1, C1, D1 and E1 notes is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of 29 February 2016.
-- Updated portfolio default rate (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A1 Notes to cover the expected losses at the AAA (sf) rating level, to the Class B1 Notes to cover the expected losses at the AA (sf) rating level, to the Class C1 Notes to cover the expected losses at the A (low) (sf) rating level, to the Class D1 Notes to cover the expected losses at the BBB (low) (sf) rating level and to the Class E1 Notes to cover the expected losses at the B (sf) rating level.

Moorgate Funding 2014-1 Plc is a securitisation of a portfolio of first-ranking UK non-conforming residential mortgages originated by Mortgages PLC Group, Wave Lending Limited, Close Brothers Limited, Paragon Mortgages Limited and Edeus Mortgages Creators Limited. The mortgage portfolio is serviced by Mortgages PLC, with Homeloan Management Limited acting as the back-up servicer.

The non-conforming characteristics of the portfolio include interest-only loans (85.53%), buy-to-let loans (37.25%), loans where the borrower has self-certified income (57.20%) and loans to borrowers with adverse credit history (2.72% with at least one County Court Judgment, bankruptcy or Individual Voluntary Agreement).

As of 29 February 2016, the 90+ delinquency ratio was at 4.80%, while the 120+ delinquency ratio was at 3.61%. The cumulative default ratio is low at 1.56%. The performance is within DBRS’s expectations and DBRS has maintained the PD and LGD assumptions for the remaining collateral pool.

As of the March 2016 payment date, credit enhancement to the Class A1 Notes was 40.05%, up from 37.11% in February 2015. Credit enhancement to the Class B1 Notes was 27.57%, up from 25.53% in February 2015. Credit enhancement to the Class C1 Notes was 17.59%, up from 16.26% in February 2015. Credit enhancement to the Class D1 Notes was 13.51%, up from 12.47% in February 2015. Credit enhancement to the Class E1 Notes was 7.50%, up from 6.89% in February 2015. Credit enhancement to each class of notes consists of the subordinated junior notes, the Principal Residual Certificates net of the Principal Deficiency Ledger balance and the Principal Reserve Fund.

As of March 2016 payment date, the Principal Reserve Fund was at GBP 10.17 million. It was initially funded at 1.00% of the initial balance of the notes and is allowed to grow up to a size of 2.10% of the initial balance of the notes. The transaction also includes a Class A1 Reserve Fund and a Class B1 Reserve Fund. The Class A1 Reserve Fund is currently at GBP 2.50 million and provides liquidity support to the Class A1 Notes. The Class B1 Reserve Fund is currently at GBP 1.50 million and provides liquidity support to the Class A1 and B1 notes.

Citibank N.A., London Branch holds the Transaction Account for the transaction. The DBRS private rating of Citibank N.A., London Branch complies with the Minimum Institution Rating given the rating assigned to the Class A1 Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the 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 Citibank, N.A. London Branch and the loan by loan data from the European DataWarehouse GmbH and Citibank, N.A. London Branch.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third party assessments. However, this did not impact the rating analysis.

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 28 April 2015 when DBRS confirmed the ratings of the Class A1, B1, C1, D1 and E1 Notes. The lead responsibilities for this transaction have been transferred to Kevin Ma.

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 PD and LGD for the pool based on a review of the current assets. 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 14.10% and 26.79%, respectively. The corresponding levels at the AAA (sf) rating level are 44.26% and 49.89%.

-- 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 A1 Notes would be expected to be downgraded to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A1 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 A1 Notes would be expected to be downgraded to AA (low) (sf).

Class A1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 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 (low) (sf)

Class B1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of BBB (high) (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 A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class C1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf)

Class D1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)

Class E1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (sf)
-- 50% increase in LGD, expected rating below B (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Alastair Bigley
Initial Rating Date: 24 April 2014
Initial Rating Committee Chair: Erin Stafford

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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31st Floor,
London EC3M 3BY United Kingdom
Registered in England and Wales: No. 7139960.

The rating methodologies 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
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375