TEXT-Fitch affirms Northern Rock Asset Management covered bonds

Aug 9 - Fitch Ratings has affirmed Northern Rock Asset Management plc's
(NRAM, 'A'/Negative/'F1') outstanding GBP5.704bn mortgage covered bonds
at 'AAA', following a review of the programme. The bonds constitute direct
obligations of NRAM and are guaranteed by Northern Rock Covered Bond LLP, a
special-purpose vehicle established for the purpose of the programme.

The rating of the covered bonds is based on NRAM's Long-Term Issuer Default
Rating (IDR) of 'A' and a D-Factor of 34.7%, the combination of which enables
the mortgage covered bonds to be rated as high as 'AA' on a probability of
default (PD) basis. The rating also reflects the quality of the collateral and
the overcollateralisation (OC) between the cover assets and the covered bonds.
The asset percentage (AP) supporting the 'AAA' rating remains unchanged from the
previous review in August 2011 at 61.9%. For issuers rated 'F2' or above, Fitch
relies on the highest observed nominal AP over the past 12 months, which is
55.3%. This is sufficient to pass 'AA' stress scenarios, and provides for high
recoveries given default of the covered bonds in a 'AAA' scenario. All else
being equal, the covered bonds can be maintained at 'AAA' as long as NRAM's IDR
remains at least 'A'.

The D-Factor reflects the strong asset segregation of the cover pool in a
bankruptcy-remote special purpose entity, a one-month interest reserve that
protects against liquidity gaps following issuer insolvency and a 12-month
extendible maturity on the covered bonds. It also reflects the contractual
provisions for the guarantor to take decisions after issuer default, aided by
the adequate quality of NRAM's IT systems and swap counterparty arrangements.

At 30 June 2012, the cover pool consisted of 71,276 loans with an aggregate
outstanding balance of GBP9.537bn. The GIC account, guaranteed by HM Treasury,
stands at GBP2.053bn. The weighted-average (WA) original loan to value of the
cover pool is 84.9%. Of the portfolio, 66.2% are interest-only mortgages and
18.3% are fixed rate and the pool is seasoned with a WA seasoning of 5.7 years.
The portfolio is diversified across the UK, with concentrations in Greater
London (12.5%) and the South East (24.7%). In a 'AAA' stress scenario, Fitch has
calculated the pool's cumulative WA frequency of foreclosure to be 41.6% with a
WA recovery rate of 47.4%.

Fitch will monitor the key characteristics of the cover assets and outstanding
covered bonds on an ongoing basis, and check whether the AP taken into account
in its analysis provides protection commensurate with the rating. The level of
AP supporting the rating is affected by, among other factors, the profile of the
cover assets relative to outstanding covered bonds, which can change over time,
even in the absence of new issuances. Therefore, it cannot be assumed that the
rating will remain stable over time.

Fitch has published an exposure draft outlining a number of enhancements to its
criteria for rating covered bonds (see 'Fitch: Exposure Draft: Global Covered
Bonds Rating Criteria' dated 30 May 2012 at www.fitchratings.com). If
implemented as proposed and all else being equal, the criteria changes may have
an impact on the rating of NRAM's covered bonds.

Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria', dated 30 May 2012,
'Covered Bonds Counterparty Criteria', dated 13 March 2012, 'EMEA Residential
Mortgage Loss Criteria Addendum - UK', dated 12 August 2012 and 'EMEA
Residential Mortgage Loss Criteria', dated 7 June 2012 are available on
www.fitchratings.com

Applicable Criteria and Related Research:
Covered Bonds Rating Criteria
Covered Bonds Counterparty Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - United Kingdom - Mortgage and Cashflow Assumptions