Moody’s downgrades Money Partners non-conforming RMBS deals

14 February 2012 | By Tessa Norman

The ratings of senior notes issued by Money Partners Securities 2 plc (MPS2) and Money Partners Securities 3 plc (MPS3) were placed on review for possible downgrade on October 14 2011 following the downgrade of Skipton Building Society from Baa1/P-2 to Ba1/NP.

The rating of all classes of notes issued by Money Partners Securities 4 plc (MPS4) were placed on review for possible downgrade on July 14 2011 following a performance review of 75 UK non-conforming RMBS transactions.

Moody’s says today’s downgrade is driven by the exposure to payment disruption risk, the revision of collateral performance assumptions, its outlook for UK non-conforming RMBS, and the level of credit enhancement supporting the notes.

The ratings agency says that the payment disruption risk was derived from an analysis of continuity of payments following a potential disruption in functions performed by HML, the servicer and back-up cash manager for the transactions.

This analysis was carried out because HML is part of Skipton Building Society, which was downgraded last year.

Meanwhile, Moody’s says it has revised its collateral performance assumptions for the transactions because the performance has been worse than assumed since the latest reviews in June 2011 for MPS2, July 2011 for MPS3, and June 2010 for MPS4.

As of November 2011, loans more than 360 days delinquent (excluding outstanding repossessions) comprised 12.6% of the outstanding principal balance in the MPS2 portfolio, 12.9% in MPS3 and 15.0% in MPS4 portfolio.

Only 10% of loans that were more than 360 days delinquent as of February 2011 have improved their performance and moved into a lower arrears bracket as of November 2011.

For this reason, Moody’s considers loans with delinquencies exceeding 360 days as a proxy for further increases in repossessions in future.

Moody’s has now increased its lifetime expected loss assumption from 7.2% to 8.7% of the original portfolio balance in MPS2, from 9.0% to 10.2% in MPS3 and from 8.0% to 13.0% in MPS4.

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