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RMAC No. 2’s Class B And C U.K. RMBS Notes Upgraded; Class A And D Notes Affirmed

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RMAC No. 2’s Class B And C U.K. RMBS Notes Upgraded; Class A And D Notes Affirmed


  • We have reviewed RMAC 2's current asset pool and capital structure as part of our regular surveillance cycle.
  • Following our review, we have raised our ratings on the class B and C-Dfrd notes, and have affirmed our ratings on the class A and D-Dfrd notes.
  • RMAC No. 2 securitizes a pool of nonconforming residential mortgage loans.

LONDON (S&P Global Ratings) July 22, 2021--S&P Global Ratings today raised to 'AAA (sf)' and 'AA+ (sf)' from 'AA+ (sf)' and 'AA (sf)' its credit ratings on RMAC No. 2 PLC's class B and C-Dfrd notes. At the same time, we have affirmed our 'AAA (sf)' and 'AA- (sf)' ratings on the class A and D-Dfrd notes.

Delinquencies have been decreasing since closing but remain slightly above our U.K. nonconforming RMBS index, (see "European RMBS Index Report Q1 2021," published on June 16, 2021). The transaction has a small although growing proportion of loans that have past their original maturity date without repaying (3.1%) and have had their maturity revised. Approximately a third of interest-only loans which were originally meant to have matured by now have failed to do so, which is in line with what we observe in the other U.K. nonconforming RMBS transactions. We have considered these loans to be defaulted (with a recovery benefit) and modelled the transaction undercollateralized.

The transaction's available credit enhancement has increased for all classes of notes since our previous review as a result of the sequential note amortization.

Our weighted-average foreclosure frequency assumptions have decreased for all levels since our previous review. This is due to a decrease in arrears. Our weighted-average loss severity assumptions have also decreased for all levels since our previous review. This is driven by the reduction in weighted-average indexed current loan-to-value ratio. Overall, there has been a decrease in credit coverage at all rating levels since our previous review.

WAFF And WALS Assumptions
Rating level WAFF (%) WALS (%) Credit Coverage (%)
AAA 24.07 22.18 5.34
AA 20.15 14.83 2.99
A 18.02 5.53 1.00
BBB 15.88 2.54 0.40
BB 13.56 2.00 0.27
B 13.04 2.00 0.26
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

There are no counterparty constraints on the ratings on the notes in this transaction. The replacement language in the documentation is in line with our current counterparty criteria.

Considering the results of our credit and cash flow analysis, the increase in available credit enhancement, and the transaction's performance, we consider that the available credit enhancement for the class B and C-Dfrd notes is now commensurate with higher ratings than those currently assigned. We have therefore raised to 'AAA (sf)' from 'AA+ (sf)' our rating on the class B notes, and to 'AA+ (sf)' from 'AA (sf)' our rating on the class C-Dfrd notes. Our cash flow analysis on the class C-Dfrd notes indicated a higher rating than that assigned, but we do not consider deferrable notes to be commensurate with our 'AAA (sf)' rating.

Similarly, our cash flow analysis indicated a higher rating for the class D-Dfrd notes than that assigned. However, the rating assigned also considers the risk of interest-only loans within this pool. About 79% of the pool is interest-only for life, while 10% of the pool is buy-to-let. Therefore, a large proportion of the pool comprises interest-only loans on owner-occupied properties. Since there is no mandatory capital repayment over the loan's term, there is a risk that the outstanding principal balance will not be paid by the end of the loan term. Additionally, our 'AA- (sf)' rating on the class D-Dfrd notes also considers the transaction's sequential pay nature and the fact that these notes are junior within the structure.

We have also affirmed our 'AAA (sf)' rating on the class A notes as the available credit enhancement continues to be commensurate with the assigned rating.

The notes will pay a coupon based on SONIA (Sterling Over Night Indexed Average) rather than LIBOR (London Inter-Bank Offered Rate) from the March 2022 interest payment date onwards. We have considered this switch in our cash flow analysis.

Our credit stability analysis indicates that the maximum projected deterioration that we would expect at each rating level over one- and three-year periods, under moderate stress conditions, is in line with our credit stability criteria (see "Methodology: Credit Stability Criteria," published on May 3, 2010).

RMAC No. 2 is a securitization of a pool of nonconforming residential mortgage loans.

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Primary Credit Analyst:Alice Delemarle-Charton, CFA, London + 44 20 7176 3594;
Research Contributor:Parashar Tendolkar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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