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Together Asset Backed Securitisation 2021-1ST1 PLC Class C-Dfrd U.K. RMBS Rating Raised; Two Classes Affirmed
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Together Asset Backed Securitisation 2021-1ST1 PLC Class C-Dfrd U.K. RMBS Rating Raised; Two Classes Affirmed

Overview

  • There has been an increase in credit enhancement for all rated notes in Together Asset Backed Securitisation 2021-1ST1 PLC.
  • We therefore raised our rating on the class C-Dfrd notes. At the same time, we affirmed our ratings on the class A and B-Dfrd notes, as the available credit enhancement is commensurate with the assigned ratings.
  • Our ratings reflect the results of our additional cash flow sensitivities, which consider our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market.
  • The transaction is backed by a pool of nonconforming owner-occupied and buy-to-let mortgage loans secured on properties in the U.K.

LONDON (S&P Global Ratings) Nov. 8, 2023--S&P Global Ratings today raised to 'AA- (sf)' from 'A+ (sf)' its credit rating on Together Asset Backed Securitisation 2021-1ST1 PLC's class C-Dfrd notes. At the same time, we affirmed our 'AAA (sf)' and 'AA+ (sf)' ratings on the class A and B-Dfrd notes, respectively.

Today's upgrade reflects that while arrears performance has deteriorated since closing, credit enhancement for the rated notes has increased due to prepayments and the fact that the transaction is amortizing sequentially (see "Related Research"). Loan-level arrears currently stand at 7.54%, up from 2.66% at closing. Arrears greater than or equal to 90 days currently stand at 1.45%.

Since closing, the general and liquidity reserve fund has remained at its target, and no losses have been recorded.

Overall, the required credit coverage is lower compared to our closing analysis. This reflects the higher arrears, higher credit enhancement, and lower weighted average loss severity (WALS). The pool's WALS decreased mainly due to a steady increase in house prices.

Table 1

Portfolio WAFF and WALS
Rating level WAFF (%) WALS (%) Credit coverage (%) Base foreclosure frequency component for an archetypical U.K. mortgage loan pool (%)
AAA 18.36 24.55 4.51 12.00
AA 13.23 17.26 2.28 8.10
A 10.61 7.85 0.83 6.10
BBB 8.11 3.82 0.31 4.20
BB 5.48 2.00 0.11 2.20
B 4.89 2.00 0.10 1.75
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

Our credit and cash flow results indicate that the available credit enhancement for the class A notes continues to be commensurate with the assigned rating. We therefore affirmed our 'AAA (sf)' rating.

The rating on the class B-Dfrd notes is below that indicated by our cash flow analysis. These notes are rated according to the payment of ultimate interest and principal, and interest can therefore defer on these notes when they are not the most senior class outstanding. The presence of interest deferral mechanisms is, in our view, inconsistent with the definition of a 'AAA' rating (see "Related Research"). We therefore affirmed our 'AA+ (sf)' rating.

The rating on the class C-Dfrd notes is below the level indicated by our standard cash flow analysis. The assigned rating reflects the relative position of the notes in the capital structure as well as the small increase in the available credit enhancement compared with more senior classes. At the same time, we consider the gradual increase in arrears, increased concentration risk (compared with our closing analysis), and the current macroeconomic outlook. Reflecting all of these factors, we raised our rating to 'AA- (sf)'.

Macroeconomic forecasts and forward-looking analysis

We expect U.K. inflation to remain high for the rest of 2023 and forecast the year-on-year change in house prices in fourth-quarter 2023 to be 6.6% and 4.9% in first-quarter 2024 (see "European Housing Markets: Sustained Correction Ahead," published on July 20, 2023). Although high inflation is overall credit negative for all borrowers, inevitably some borrowers will be more negatively affected than others, and to the extent inflationary pressures materialize more quickly or more severely than currently expected, risks may emerge.

We consider the borrowers to be nonconforming and as such are generally less resilient to inflationary pressure than prime borrowers. At the same time, a significant proportion of the pool is still paying a fixed rate of interest, until 2026 on average, who will not be affected by the higher interest rate environment in the short term.

Given our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market, we have performed additional sensitivities related to higher levels of defaults due to increased arrears and house price declines. We have also performed additional sensitivities with extended recovery timing due to observed delays to repossession owning to court backlogs in the U.K. and the recent repossession grace period announced by the U.K. government under the Mortgage Charter. Today's rating actions reflect the results of these additional cash flow sensitivities.

Related Criteria

Related Research

Primary Credit Analyst:Abhijit A Pawar, London + 44 20 7176 3774;
abhijit.pawar@spglobal.com
Secondary Contacts:Alastair Bigley, London + 44 20 7176 3245;
Alastair.Bigley@spglobal.com
Jacob Douer, London;
jacob.douer@spglobal.com

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