TEXT-S&P lowers rtgs in Dutch RMBS deals Citadel 2010-I, 2010-II

Fri Dec 28, 2012 6:31am EST

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(The following statement was released by the rating agency)

Dec 28 -

OVERVIEW

-- Van Lanschot is the originator and servicer for Citadel 2010-I and Citadel 2010-II. Our ratings on the class C notes in both transactions are weak-linked to the long-term ICR on Van Lanschot as we do not stress set-off risk in our cash flow analysis.

-- On Nov. 16, 2012, we lowered our long-term ICR on Van Lanschot to 'BBB+' from 'A-' based on our view of the Netherlands' weakening economy.

-- Consequently, we have today lowered to 'BBB+' from 'A- (sf)' our ratings on Citadel 2010-I and 2010-II's class C notes to be in line with the long-term ICR on Van Lanschot.

-- These RMBS transactions are backed by Dutch residential mortgages originated and serviced by Van Lanschot.

Standard & Poor's Ratings Services today lowered to 'BBB+ (sf)' from 'A- (sf)' its credit ratings on Citadel 2010-I B.V.'s and Citadel 2010-II B.V.'s class C notes. Our ratings on the class A and B notes in both transactions remain unaffected by today's rating actions.

Today's rating actions follow our lowering of our long-term counterparty rating on F. van Lanschot Bankiers N.V. (Van Lanschot; BBB+/Stable/A-2) to 'BBB+' from 'A-' on Nov. 16, 2012 (see "Dutch Private Bank F. van Lanschot Bankiers Ratings Lowered To 'BBB+' On Weaker Economic Environment; Outlook Stable").

Van Lanschot is the originator, seller, and servicer for the Citadel 2010-I and 2010-II transactions. Van Lanschot is a Dutch private bank targeting high net worth individuals. As Van Lanschot is a deposit-taking institution, borrowers in the pool may have considerable amounts of cash deposited with it and may try to set off such amounts against amounts owed to Citadel 2010-I and 2010-II if Van Lanschot defaults.

Under the transaction documents, if the seller is downgraded below 'BBB+', it is obliged to notify the borrowers that the mortgage loan has been sold to the issuer. Although we believe that this notification process partially mitigates set-off risk, it does not completely eliminate it. Data show that for both transactions, set-off exposure has always been below 10% of the mortgage pool's balance. Under the documentation, the seller has been obliged to cash-collateralize this exposure to the extent that it exceeds 10%. We took this risk into account in our cash flow analysis when we assigned our ratings to the class A and B notes, by assuming that in a 'AAA' scenario, 10% of the collateral is lost due to set-off risk.

Our ratings on Citadel 2010-I and 2010-II's class A and B notes are unaffected by the downgrade of Van Lanschot. However, our ratings on the class C notes are weak-linked to the long-term issuer credit rating (ICR) on Van Lanschot as originator. This means that we have not stressed set-off risk in our cash flow analysis of these notes. We have therefore lowered to 'BBB+ (sf)' from 'A- (sf)' our ratings on Citadel 2010-I and 2010-II's class C notes to be in line with the ICR on Van Lanschot.

Van Lanschot is the originator and servicer of the collateral that backs these Citadel transactions.

RELATED CRITERIA AND RESEARCH

Related Criteria

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Methodology And Assumptions: Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- Dutch RMBS Market Overview And Criteria, Dec. 16, 2005

-- Cash Flow Criteria for European RMBS Transactions, Nov. 20, 2003

Related Research

-- Dutch Private Bank F. van Lanschot Bankiers Ratings Lowered To 'BBB+' On Weaker Economic Environment; Outlook Stable, Nov. 16, 2012

-- Ratings Affirmed In Dutch RMBS Transactions Citadel 2010-I And Citadel 2010-II, Aug. 14, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- New Issue: Citadel 2010-II B.V., Aug. 5, 2010

-- New Issue: Citadel 2010-I B.V., July 20, 2010

-- Dutch RMBS Index Report (published quarterly)

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