(Repeat for additional subscribers)
March 31 (The following statement was released by the rating agency)
This announcement corrects the version published 4
March 2014, which incorrectly affirmed Friary No.1 Plc's class A1 notes. These
notes paid in full on 22 July 2013.
Fitch Ratings has affirmed First Flexible 4 Plc (FF4), First Flexible 7 Plc
(FF7) and Friary No.1 plc (Friary) and upgraded eight tranches of Brunel
Residential Mortgages Securitisation No.1 plc (Brunel). A full list of rating
actions is at the end of this commentary.
KEY RATING DRIVERS
Divergence in Asset Performance
FF4, Friary and Brunel have shown healthy performance with loans in arrears by
more than three months (3M+) at 0.2% (FF4), 0.7% (Friary) and 1.7% (Brunel) of
the outstanding pool balance and loans with properties in possession at 0.1% for
Friary and Brunel and 0.4% for FF4. In contrast, for FF7, 3M+ arrears stood at
3.5% of current pool balance and loans with properties in possession at 2% (only
two loans amounting to GBP1m).
The higher level of arrears and loans in possession in FF7 is partially
attributable to the higher interest rates payable by borrowers. The portfolio is
earning a weighted average (WA) yield of 4.98% compared with the current WA
yield for FF4 of 2.3%. In addition, 89% of FF4's current portfolio is buy-to-let
(BTL) loans and only 5% for FF7. Paragon's extensive use of its receiver of rent
policies, applicable only to BTL mortgages, has also contributed towards the
better performance of FF4 compared with FF7.
Given the current low pipeline of defaults for FF4, Friary and Brunel, Fitch
expects repossessions and associated losses to remain minimal in the coming
year, while the high level of excess spread in FF7 (annualised at 3.3%) is
expected to remain sufficient to cover any future losses from the sale of
properties taken into possession as the high seasoning of the underlying
mortgages and the resulting low indexed current loan-to-value ratio (CLTV) of
18% in FF7 (50% in FF4) is expected to result in limited losses.
Prior to 15 November 2013, both the FF4 and FF7 portfolios comprised loans with
flexible features whereby borrowers were able to redraw on past overpayments.
The removal of this feature and subsequent cancellation of the respective redraw
facilities provided by Barclays has no rating impact on the notes.
Strong Credit Enhancement (CE) Supports Upgrade
The robust performance of Brunel 1 has enabled pro-rata amortisation of the
notes to continue, benefiting the junior notes of the capital structure.
Subsequently, the build-up of CE for Brunel's rated notes to more than double
that at closing has led to the upgrade of the class B, C and D notes by one
notch. Furthermore, given fully funded non-amortising cash reserves for all four
transactions, we expect a further build-up in CE as the notes continue to pay
The reserve funds in FF4 and FF7 are held with Barclays (A/Stable/F1). As the
respective reserve funds are the sole form of credit support for the most junior
tranches in both transactions, a default of the account bank could lead to
payment interruption risks and subsequently have a negative impact on the notes'
The rating actions are as follows:
First Flexible No. 4 Plc
Class A (ISIN XS0132692384): affirmed at 'AAAsf'; Outlook Stable
Class M (ISIN XS0132692897): affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0132693192): affirmed at 'AA-sf'; Outlook Stable
First Flexible No. 7 Plc
Class A (ISIN XS0282470797): affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0282471092): affirmed at 'AAsf'; Outlook Stable
Class C (ISIN XS0282471175): affirmed at 'Asf'; Outlook Stable
Friary No.1 Plc
Class A2 (ISIN XS 0652306407): affirmed at 'AAAsf'; Outlook Stable
Brunel Residential Mortgages Securitisation No.1 plc
Class A4a (ISIN XS0289300898): affirmed at 'AAAsf'; Outlook Stable
Class A4b (ISIN XS0289303215): affirmed at 'AAAsf'; Outlook Stable
Class A4c (ISIN XS0289307398): affirmed at 'AAAsf'; Outlook Stable
Class B4a (ISIN XS0289324138): upgraded to 'AA+sf' from 'AAsf'; Outlook Stable
Class B4b (ISIN XS0289324484): upgraded to 'AA+sf' from 'AAsf'; Outlook Stable
Class C4a (ISIN XS0289326265): upgraded to 'A+sf' from 'Asf'; Outlook Stable
Class C4b (ISIN XS0289326935): upgraded to 'A+sf' from 'Asf'; Outlook Stable
Class C4c (ISIN XS0289326935): upgraded to 'A+sf' from 'Asf'; Outlook Stable
Class D4a (ISIN XS0289327313): upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable
Class D4b (ISIN XS0289327826): upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable
Class D4c (ISIN XS0289368853): upgraded to 'BBB+sf' from 'BBBsf'; Outlook Stable