RPT-Fitch downgrades Fresh Series 2 class A notes
Sept 26 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has downgraded Finance for Residential Social Housing's (Fresh) Series 2 class A notes and affirmed the others, as follows:
-Series 2 Class A notes: downgraded to 'AAsf' from 'AA+sf'; off Rating Watch Negative (RWN); Negative Outlook
Series 1 Class A1 notes affirmed at 'AA+sf'; Negative Outlook
Series 1 Class A2 notes affirmed at 'AA+sf'; Negative Outlook
Series 1 Class A3 notes affirmed at 'AAsf'; Negative Outlook
Series 1 Class B notes affirmed at 'BBBsf'; Negative Outlook
Series 2 Class B notes affirmed at 'BBBsf'; Negative Outlook
KEY RATING DRIVERS
The rating actions on the Series 2 class A notes follow Fitch's further assessment of the financial viability of the two largest borrowers of the series 2 portfolio.
In the agency's view, the series 2 class A notes could not withstand more than one default of these two largest borrowers, under an assumed recovery rate of 50%. The low level of recoveries considered by Fitch in its analysis is due to the lack of information on the collateral of the loans. Based on its assessment of these two largest borrowers, Fitch considers the credit quality of the series 2 class A notes as commensurate with a 'AAsf' rating.
The Negative Outlooks continue to reflect concerns about the wider UK social housing sector (see "Fitch Revises Two English Social Housing Associations' Outlooks to Negative", dated 30 May 2013 and "Fitch Revises Five UK Social Housing Transactions' Outlook to Negative", dated 12 July 2013 at www.fitchratings.com). These concerns relate in particular to the on-going reform in housing benefits in the UK, the payments of benefits to tenants rather than housing associations directly, and uncertainties surrounding the evolution of public subsidies for the investment in the sector.
The affirmations reflect the transaction's stable performance, with no defaults and negligible arrears to date. Fitch currently calculates the credit enhancement at 9.4% for the series 1 class A1 and A2 notes, 5.4% for the series 1 class A3 notes, 1.3% for the series 1 class B notes, 13.3% for the series 2 class A notes and 6.7% for the series 2 class B notes. The series 1 and series 2 portfolios are largely segregated, since principal collections on any of these cannot be applied in redemption of the notes attached to the other.
The Negative Outlook on the notes could translate into a downgrade if further concerns arise on the sector, or if there is a deterioration in the credit quality of the main obligors. Due to the concentration of borrowers in the series 2 portfolio and the lack of available information on the loans' collateral, the series 2 Class A notes are particularly exposed to a deterioration in the credit quality of the two largest obligors.
Given the government support for the UK social housing sector, an upgrade or downgrade of the UK's ratings could also affect the transaction's ratings. Fresh is a securitisation of housing loans originated by The Housing Corporation and Housing for Wales, Tai Cymru, to housing associations in England and Wales. The series 1 notes are backed by fixed-rate loans while the series 2 notes are backed by variable-rate loans.
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