Reuters: Financial Services and Real Estate: TEXT-S&P takes rating actions in Eurohome UK Mortgages 2007-1, 2007-2

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TEXT-S&P takes rating actions in Eurohome UK Mortgages 2007-1, 2007-2 Jun 1st 2012, 16:24 Fri Jun 1, 2012 12:24pm EDT June 1 - OVERVIEW -- We have carried out our credit and cash flow analysis, applying our December 2011 U.K. RMBS criteria. -- Cumulative losses for both transactions are above our nonconforming index and keep increasing, showing a worsening portfolio quality. -- 90+ day delinquencies, especially for series 2007-2, are high and not expected to decrease in the near future. -- The notes are paying down slowly, especially for series 2007-1, with slight increases in credit enhancement, not offsetting the losses arising from the portfolio, which causes the downgrades of the junior notes, unable to stand further portfolio deterioration. -- We have taken various rating actions based on our credit and cash flow analysis of the most recent transaction information that we have received. -- Eurohome UK Mortgages 2007-1 and 2007-2 are the first and second transactions to securitize residential mortgages offered in the U.K. by Deutsche Bank's U.K. mortgage origination arm, DB mortgages. The transactions closed in 2007. LONDON (Standard & Poor's) June 1, 2012--Standard & Poor's Ratings Services today took various credit rating actions on the notes issued by Eurohome UK Mortgages 2007-1 PLC and Eurohome UK Mortgages 2007-2 PLC (see list below). Today's rating actions follow our credit and cash flow analysis of the most recent transaction information that we have received (end of April 2012). Our analysis reflects our December 2011 U.K. residential mortgage-backed securities (RMBS) criteria and our 2010 counterparty criteria, taking into account our current ratings on the transaction counterparties. The main counterparties in these transactions are Deutsche Bank AG (A+/Negative/A-1) and Barclays Bank PLC (A+/Stable/A-1), acting as the liquidity facility provider and basis swap provider, respectively. Cumulative losses in these transactions are high, at 3.33% for series 2007-1 and 4.87% for series 2007-2, and they keep increasing. While series 2007-1 has 90+ day delinquencies in line with observed levels in comparable transactions, series 2007-2 shows a worse performance. Series 2007-1 benefits from a fully funded reserve fund with an annualized excess spread of 1.1%, and series 2007-2's reserve fund is likely to be topped up at the next payment date. Any excess spread generated will be used as the first layer of protection against future losses arising in the portfolio. Due to the cumulative loss triggers being breached, the transactions do not meet the pro rata repayment conditions set out in the transaction documents, so they are paying sequentially for the remainder of each transaction, and we have modeled them as such in our analysis. The liquidity facility documents are not compliant with our 2010 counterparty criteria. Therefore, in our cash flow model for both transactions, we have not considered the benefit of the liquidity facility for notes rated above the long-term issuer credit rating on the liquidity facility provider, Deutsche Bank (A+). In series 2007-2, the class A1 notes are able to withstand 'AAA' stresses even without the liquidity facility in place, while the class A2 notes would not pass rating levels higher than 'A+' when modeling with the liquidity facility. EUROHOME UK MORTGAGES 2007-1 The notes are paying down very slowly, which has resulted in only a slight increase in credit enhancement levels since our last review. This increase has not been able to offset the rising cumulative losses in the portfolio that keep increasing alongside the level of 90+ day delinquencies. These factors have led to the mezzanine and junior tranches not being able to withstand the stresses applied at their current rating levels. As a result, we have today lowered our ratings on the class M1 to B1 notes. The rating on the class A notes is capped at the level of the rating on Deutsche Bank (A+), as these notes would not pass at a higher rating level without the liquidity facility in place. We have affirmed our 'B- (sf)' rating on the class B2 notes because of the very small amount of credit enhancement available for the tranche. The class C notes benefit from the 1.1% of excess spread and the non-amortizing reserve fund. As the notes are paying down and are current in payments of both interest and principal, we have raised our rating on this class to 'B- (sf)'. EUROHOME UK MORTGAGES 2007-2 Although the underlying portfolio is of a worse quality than the one securitized in the 2007-1 series, the structure has higher credit enhancement levels to support the class A1 notes--which, in fact, can withstand 'AAA' stresses even when the liquidity facility is not modeled. The class A3 to B1 notes do not pass the stresses applied at their current ratings, and hence we have lowered our ratings on these classes. As in series 2007-1, we have affirmed our 'B- (sf)' rating on the class B2 notes because of the very small amount of credit enhancement available for the tranche. The class C notes' principal is repaid through excess spread, and it is currently paying interest; but it is not paying down principal, as the reserve fund is below the target amount. We expect the reserve fund to build up to its required amount at the next payment date, and we therefore expect the class C notes to start redeeming from the September 2012 interest payment date onward, if the performance does not deteriorate meaningfully. We have therefore raised our rating on this class to 'B- (sf)'. Today's downgrades of the mezzanine and junior tranches in both transactions reflect the upward trend of the level of cumulative losses, and the high levels of 90+ day delinquencies. CREDIT STABILITY Our credit stability analysis indicates that the maximum projected deterioration that we would expect at each rating level for time horizons of one year and three years, under moderate stress conditions, is in line with our credit stability criteria. STANDARD & POOR'S 17G-7 DISCLOSURE REPORT SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating relating to an asset-backed security as defined in the Rule, to include a description of the representations, warranties and enforcement mechanisms available to investors and a description of how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities. The Rule applies to in-scope securities initially rated (including preliminary ratings) on or after Sept. 26, 2011. If applicable, the Standard & Poor's 17g-7 Disclosure Reports included in this credit rating report are available atRELATED CRITERIA AND RESEARCH -- U.K. Nonconforming RMBS Index Report Q1 2012: Low Interest Rates Keep Defaults At Bay As The Economy Contracts, May 9, 2012 -- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012 -- European RMBS CreditWatch Placements Linked To Recent Bank Rating Actions--Dec. 21, 2011, Dec. 21, 2011 -- Ratings On 764 Tranches In 119 U.K. RMBS Transactions Placed On CreditWatch Negative After U.K. RMBS Criteria Update, Dec. 12, 2011 -- U.K. RMBS Methodology And Assumptions, Dec. 9, 2011 -- Research Update: Barclays Bank PLC Ratings Lowered To 'A+/A-1' From 'AA-/A-1+' On Bank Criteria Change; Outlook Stable, Nov. 29, 2011 -- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011 -- Counterparty And Supporting Obligations Methodology And Assumptions, Dec. 6, 2010 -- Methodology: Credit Stability Criteria, May 3, 2010 RATINGS LIST Class Rating To From Eurohome UK Mortgages 2007-1 PLC GBP354.725 Million Mortgage-Backed Floating-Rate Notes Plus An Overissuance Of Excess-Spread-Backed Floating-Rate Notes Rating Affirmed And Removed From CreditWatch Negative A A+ (sf) A+ (sf)/Watch Neg Ratings Lowered And Removed From CreditWatch Negative M1 BBB+ (sf) A- (sf)/Watch Neg M2 BB (sf) BBB- (sf)/Watch Neg B1 B (sf) BB- (sf)/Watch Neg Rating Affirmed B2 B- (sf) B- (sf) Rating Raised C B- (sf) CCC (sf) Eurohome UK Mortgages 2007-2 PLC EUR70 Million, GBP460.5 Million Mortgage-Backed And Excess-Spread-Backed Floating-Rate Notes Ratings Affirmed And Removed From CreditWatch Negative A1(A) AAA (sf) AAA (sf)/Watch Neg A1(B) AAA (sf) AAA (sf)/Watch Neg A2 A+ (sf) A+ (sf)/Watch Neg Ratings Lowered And Removed From CreditWatch Negative A3 BBB+ (sf) A+ (sf)/Watch Neg M1 BBB (sf) BBB+ (sf)/Watch Neg M2 BB (sf) BB+ (sf)/Watch Neg B1 B (sf) B+ (sf)/Watch Neg Rating Affirmed B2 B- (sf) B- (sf) Rating Raised C B- (sf) D (sf) Link this Share this Digg this Email Reprints

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