Various Rating Actions Taken In U.K. Nonconforming RMBS Transaction Newgate Funding#s Series 2006-2 Following Review

Stocks and Financial Services Press Releases Thursday September 28, 2017 17:14
LONDON--28 Sep--S&P Global Ratings

LONDON (S&P Global Ratings) Sept. 28, 2017--S&P Global Ratings today affirmed its 'A- (sf)' credit ratings on Newgate Funding PLC series 2006-2's class A3a, A3b, M, Ba, and Bb notes. At the same time, we have raised to 'A- (sf)' from 'BBB- (sf)' our ratings on the class Ca and Cb notes, to 'BB+ (sf)' from 'B- (sf)' our ratings on the class Da and Db notes, and to 'B+ (sf)' from 'B- (sf)' our rating on the class E notes (see list below).

Today's rating actions follow our credit and cash flow analysis of the transaction using information from the July 2017 investor report and July 2017 loan-level data. Our analysis reflects the application of our European residential loans criteria and our current counterparty criteria (see " Methodology And Assumptions: Assessing Pools Of European Residential Loans," published on Aug. 4 2017, and "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013).

In our opinion, the performance of the loans in the collateral pool has improved since our Sept. 23, 2016 review (see "Various Rating Actions Taken In U.K. Nonconforming RMBS Transaction Newgate Funding's Series 2006-2 Following Review"). Total delinquencies have decreased to 23.9% from 27.0%, 90+ days delinquencies to 15.6% from 18.1%, and repossessions to 0.06% from 0.15%. Although the abovementioned decreases are in line with the evolution observed in our U.K. nonconforming residential mortgage-backed securities (RMBS) index, Newgate Funding's series 2006-2 pool has historically performed worse than the other transactions in our index (see "U.K. RMBS Index Report Q2 2017," published on Sept. 12, 2017).

Prepayments have remained stable since our previous review. As of July 2017, the prepayment rate in this transaction was about 8.8%, which is higher than the 5.7% observed in our index.

The lower arrears levels and greater proportion of the loans in the pools receiving seasoning credit benefitted our weighted-average foreclosure frequency (WAFF) calculations. Our weighted-average loss severity (WALS) assumptions have decreased at all rating levels. The transaction has benefitted from the decrease in the weighted-average current loan-to-value ratios.

Rating WAFF WALS
(%) (%)
AAA 41.67 36.21
AA 35.38 29.32
A 30.09 17.95
BBB 25.46 11.76
BB 20.76 7.95
B 18.78 5.46

Credit enhancement levels have increased for all rated classes of notes since our previous review. The notes benefit from a liquidity facility and reserve funds. The facilities are not amortizing as the respective cumulative loss triggers have been breached.

We recently received a notification stating that the liquidity facility and the liquidity facility floor had been reduced following the July 2017 interest payment date. However, the triggers relating to the amortization of the facility remain unchanged. We have considered this in our cash flow analysis.

The structure started amortizing pro rata in January 2016 because all of the pro rata triggers are currently met. We have also considered this in our cash flow analysis.

We consider the available credit enhancement for the class Ca, Cb, Da, Db, and E notes to be commensurate with higher ratings than those currently assigned. We have therefore raised to 'A- (sf)' from 'BBB- (sf)' our ratings on the class Ca and Cb notes, to 'BB+ (sf)' from 'B- (sf)' our ratings on the class Da and Db notes, and to 'B+ (sf)' from 'B- (sf)' our rating on the class E notes. The available credit enhancement for the class Ca and Cb notes is commensurate with a higher rating than 'A- (sf)', but our ratings on these classes of notes are capped at our long-term issuer credit rating (ICR) on Barclays Bank PLC (A-/Negative/A-2) as the liquidity facility and bank account provider.

In our credit and cash flow analysis, we consider the available credit enhancement for the class A3a, A3b, M, Ba, and Bb notes to be commensurate with higher ratings than those currently assigned. However, the liquidity facility and bank account provider, Barclays Bank, breached the 'A-1+' downgrade trigger specified in the transaction documents, following our lowering of its long- and short-term ICRs in November 2011 (see "Barclays Bank PLC Ratings Lowered To 'A+/A-1' From 'AA-/A-1+' On Bank Criteria Change; Outlook Stable," published on Nov. 29, 2011). Because no remedy actions were taken following our November 2011 downgrade, our current counterparty criteria cap the maximum potential rating on the notes in this transaction to our 'A-' long-term ICR on Barclays Bank. We have therefore affirmed our 'A- (sf)' ratings on the class A3a, A3b, M, Ba, and Bb notes.

Newgate Funding's series 2006-2 is a U.K. nonconforming RMBS transaction with collateral comprising a pool of first-ranking mortgages over freehold and leasehold owner-occupied properties. Based on loan-level data provided for July 2017, the collateral pool comprises 23.5% first-time buyer loans and 75.1% self-certified loans.


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