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Mansard Mortgages 2007-1 PLC Class B2a U.K. Nonconforming RMBS Rating Lowered; Other Ratings Affirmed
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Mansard Mortgages 2007-1 PLC Class B2a U.K. Nonconforming RMBS Rating Lowered; Other Ratings Affirmed

Overview

  • Following our review of Mansard Mortgages 2007-1 under our relevant criteria, we have lowered to 'B- (sf)' from 'B+ (sf)' our rating on the class B2a notes.
  • At the same time, we affirmed our ratings on the class A2a, M1a, M2a, and B1a notes.

LONDON (S&P Global Ratings) Nov. 9, 2023--S&P Global Ratings today lowered to 'B- (sf)' from 'B+ (sf)' its credit ratings on Mansard Mortgages 2007-1 PLC's class B2a notes. At the same time, we affirmed our 'A+ (sf)' ratings on the class A2a, M1a, and M2a notes and our 'BBB (sf)' rating on the class B1a notes.

Today's rating actions reflect the transaction's performance, with higher arrear balances compared with our previous analysis, although there has been a modest increase in available credit enhancement for all classes of notes (due to pro rata amortization) (see "Related Research").

The transaction is backed by a pool of buy-to-let and nonconforming mortgage loans on properties in the U.K.

Based on our calculation methodology, total arrears increased to 24.4% from 16.10% between the October 2020 and July 2023 cutoff dates and is currently above our U.K. nonconforming index for pre-2014 originations. This has resulted in an increase in our weighted-average foreclosure frequency (WAFF) at all rating levels. Our weighted-average loss severity (WALS) assumptions have decreased at all rating levels, mainly due to a lower weighted-average current loan-to-value (LTV) ratio.

The pool has showed stable performance and pool-level characteristics. Compared with our previous analysis, the performance of the portfolio has deteriorated, mainly due to the increase in arrears.

Available credit enhancement in this transaction has increased modestly since our previous review, due to the pro rata priority of payments and the nonamortizing reserve fund.

The overall effect from our credit analysis results is a increase in the required credit coverage for the 'AAA', 'AA', 'A', and 'BBB' rating levels due to increases in the WAFF (due to increases in arrears), and a marginal decrease at other rating levels due to decreases in the WALS (due to increases in house prices).

Mansard 2007-2 PLC
Rating level WAFF (%) WALS (%)
AAA 44.08 32.70
AA 38.54 23.41
A 34.88 9.80
BBB 30.30 3.82
BB 25.33 2.00
B 24.21 2.00
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

The liquidity facility is nonamortizing. It was drawn to cash upon the liquidity facility provider's (Danske Bank A/S) loss of the required rating in 2009. Both the liquidity facility and the reserve fund are at their required levels.

Danske Bank is the guaranteed investment contract (GIC) account provider for Mansard Mortgages 2007-1. Under our counterparty criteria, our ratings on these notes are capped at our 'A+' long-term issuer credit rating (ICR) on Danske Bank following its loss of an 'A-1' short-term rating and failure to take remedy action.

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.

Given our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market, we 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.

Our credit and cash flow results for the class A2a, M1a, and M2a notes indicate that these notes could withstand our stresses at higher ratings than those assigned. However, the ratings are capped at our 'A+' long-term ICR on the GIC account provider. We therefore affirmed our 'A+ (sf)' ratings on the class A2a, M1a, and M2a notes.

We also affirmed our rating on the class B1a notes. These notes could withstand our stresses at a higher rating than that assigned. However, the rating is constrained by additional factors that we considered. First, we factored the sensitivity of this class to tail-end risk due to any potential increase in defaults from the high level of exposure to interest-only loans and high arrears. In addition, we considered this class of notes' relative position in the capital structure and the significantly lower credit enhancement for the subordinated classes compared with that of the senior notes. We therefore affirmed our 'BBB (sf)' rating on the class B1a notes.

In our standard cash flow analysis, the class B2a notes face shortfalls at all rating levels. In the steady state scenario, where the current level of stress shows little to no increase and collateral performance remains steady, the class B2a notes no longer face shortfalls at a 'B' rating. Therefore, in our view, payment of interest and principal on the class B2a notes does not depend on favorable business, financial, and economic conditions. We therefore lowered to 'B- (sf)' from 'B+ (sf)' our rating on the class B2a notes.

Counterparty, operational, and legal risks are adequately mitigated in line with our criteria.

Related Criteria

Related Research

Primary Credit Analyst:Abhijit A Pawar, London + 44 20 7176 3774;
abhijit.pawar@spglobal.com
Secondary Contacts:Pratish Dcruz, London +44 2071766749;
pratish.dcruz@spglobal.com
Vedant Thakur, London + 44 20 7176 3909;
vedant.thakur@spglobal.com
Research Contributor:Vigneesh Iyer, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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