(Repeat for additional subscribers)
July 10 (The following statement was released by the rating agency)
Fitch Ratings has assigned Lowland Mortgage Backed Securities 2 B.V.'s mortgage-backed notes
final ratings, as follows:
EUR379,000,000 class A1 floating-rate notes: 'AAAsf'; Outlook Stable
EUR1,326,900,000 class A2 fixed-rate notes: 'AAAsf'; Outlook Stable
EUR65,200,000 class B fixed-rate notes: 'AAsf'; Outlook Stable
EUR63,500,000 class C fixed-rate notes: 'Asf'; Outlook Stable
EUR54,900,000 class D fixed-rate notes: 'BBsf'; Outlook Stable
EUR27,300,000 class E fixed-rate notes: 'NRsf'
Credit enhancement (CE) for the class A notes is 11.0% and is provided by
subordination of Class B, C, D & E notes. There is no reserve fund in this
KEY RATING DRIVERS
There is no swap in place to hedge the interest rate differential between the
notes and the mortgage loans. Instead, the proportions of fixed- and
floating-rate notes issued are similar to the proportions of fixed- and
floating-rate loans in the pool, thereby providing a natural hedging for basis
risk. SNS has also provided guarantees on the portfolio's minimum weighted
average (WA) margin and interest rate to protect against a decline in the
portfolio yield when loans reset.
This is a seasoned (99 months) non-revolving portfolio consisting of prime
residential mortgage loans with a weighted-average (WA) original
loan-to-market-value (OLTMV) of 75.5% and a debt-to-income ratio (DTI) of 30.7%.
The WA OLTMV is below the level typically seen in Fitch-rated Dutch RMBS
transactions, and assumes that flexible borrowers will draw the full loan amount
available. The majority of the pool was sourced from the prior Hermes XVII
The CE of 11.0% for the class A notes is achieved through subordination provided
by the class B notes (3.4%), class C notes (3.3%), class D notes (2.9%) and
class E notes (1.4%).
Exposure to SNS:
SNS Bank is the seller, servicer and foundation account provider in this
transaction. The nationalisation of SNS Bank is not expected to hinder the
transaction's operational performance. However since SNS is rated below Fitch's
eligible counterparty rating of 'A'/'F1', and acts as collection account
provider the commingling risk was mitigated by the posting of cash collateral,
equivalent to 1.5 months of mortgage payments in the transaction account.
Material increases in the frequency of defaults and loss severity on defaulted
receivables could produce loss levels higher than Fitch's base case
expectations, which in turn may result in potential rating actions on the notes.
Fitch's analysis revealed that a 30% increase in the weighted average
foreclosure frequency along with a 30% decrease in the weighted average recovery
rate would result in a downgrade of the class A1 and A2 notes' rating to
More detail on key rating drivers and rating sensitivities are further described
in the accompanying new issue report which is available at www.fitchratings.com.
For its ratings analysis, Fitch received a data template with all fields fully
Fitch used the results of the agreed-upon procedures reports (AUP) associated
with three recent SNS Bank transactions. The AUPs contained a limited amount of
material errors, although the agency did apply a moderate haircut to the
property market value for 10% of the pool.
To analyse the CE levels, Fitch evaluated the collateral using its default
model, details of which can be found in the reports entitled 'EMEA Residential
Mortgage Loss Criteria', dated June 2013, 'EMEA RMBS Criteria Addendum -
Netherlands' and 'EMEA RMBS Criteria Addendum - Netherlands - NHG-Backed', both
dated June 2013, at www.fitchratings.com. The agency assessed the transaction
cash flows using default and loss severity assumptions under various structural
stresses including prepayment speeds and interest rate scenarios. The cash flow
tests showed that each class of notes could withstand loan losses at a level
corresponding to the related stress scenario without incurring any principal
loss or interest shortfall and can retire principal by the legal final maturity.
Link to Fitch Ratings' Report: Lowland Mortgage Backed Securities 2 B.V.