Various Rating Actions Taken In Four Paragon Mortgages U.K. RMBS Transactions

  • We have reviewed Paragon Mortgages 11, 12, 14, and 15 following the implementation of our revised counterparty criteria and U.K. RMBS criteria.
  • Paragon Mortgages 11, 12, 14, and 15 are U.K. buy-to-let transactions securitizing loans that Paragon Mortgages and Mortgage Trust originated.
LONDON (S&P Global Ratings) Sept. 2, 2019--S&P Global Ratings today took various credit rating actions on the notes issued by Paragon Mortgages (No. 11) PLC, Paragon Mortgages (No. 12) PLC, Paragon Mortgages (No. 14) PLC, and Paragon Mortgages (No. 15) PLC (see list above).
Today's rating actions follow the implementation of our counterparty criteria and assumptions for assessing pools of residential loans (see "Related Criteria"). They also reflect our full analysis of the most recent transaction information that we have received and the transactions' current structural features.
Upon revising our structured finance counterparty criteria, we placed our ratings on all classes of notes from these transactions under criteria observation (see "Ratings Placed Under Criteria Observation Due To Revised Counterparty Risk Criteria," and "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019). Following our review of the transaction's performance, the application of our structured finance counterparty criteria, and our updated criteria for rating U.K. RMBS transactions (see "Global Methodology And Assumptions: Assessing Pools Of Residential Loans," published on Jan. 25, 2019), our ratings on these notes are no longer under criteria observation.
Barclays Bank UK PLC provides the currency swap contract, which was in line with our previous counterparty criteria. For Paragon 11 and 14, the replacement trigger for the swap counterparty has been confirmed as the long-term issuer credit rating (ICR) of 'BBB+'. Under our revised counterparty criteria, the resolution counterparty rating (RCR) on Barclays Bank UK is the applicable rating type. Therefore, we've imputed an 'A-' RCR replacement trigger from the 'BBB+' ICR replacement trigger given there is currently one notch of RCR uplift for Barclays Bank UK. We assess the collateral framework as adequate as the documented volatility buffers are higher than those outlined for adequate collateral in our criteria. With an adequate collateral framework and 'A-' replacement trigger, the swap supports a maximum potential rating of 'AAA (sf)'.
For Paragon 12 and 15, the replacement trigger for the swap counterparty is defined as the long-term ICR of 'A-'. Under our revised counterparty criteria, the resolution counterparty rating (RCR) on Barclays Bank UK is the applicable rating type. Therefore, we've imputed an 'A' RCR replacement trigger from the 'A-' ICR replacement trigger given there is currently one notch of RCR uplift for Barclays Bank UK. We assess the collateral framework as moderate as the documented volatility buffers are lower than those outlined for adequate collateral in our criteria. With a moderate collateral framework and 'A' replacement trigger, the swap supports a maximum potential rating of 'AAA (sf)'.
After applying our updated U.K. RMBS criteria, the overall effect in our credit analysis results in a decrease in the weighted-average foreclosure frequency (WAFF) at all rating levels for Paragon 11 and at 'AAA' to 'BBB' for Paragon 12, 14, and 15. This is mainly due to the changes to adjustments of buy-to-let (BTL) loans, including no longer applying interest-only adjustments to BTL loans. Our weighted-average loss severity (WALS) assumptions have decreased at all rating levels driven by the revised jumbo valuation thresholds and the introduction of a separate Greater London category.
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