March 11 (The following statement was released by the rating agency)
LONDON, March 11 (Fitch) Fitch Ratings says there is no rating impact on the
Holmes Master Issuer PLC's notes following a restructure of the programme's
account bank arrangements. Fitch believes that the new arrangements sufficiently
mitigate counterparty risk to the issuer account banks, although they deviate
from the agency's counterparty criteria. The amendments comprise the creation of
the Account A and Account B structures outlined below.
Prior to the amendments, the programme account bank role was performed entirely
by the Santander UK plc ('A'/Stable/'F1'). Consistent with Fitch's criteria for
counterparty risk, the programme account bank role was subject to a minimum
rating threshold of 'A' and 'F1' and replacement within 30 days of a rating
The Account A structure is intended to hold time-sensitive cash funds. For
example, Account A will hold reserve account funds, interest collections and
principal accumulations for hard bullet maturities. In addition, Account A will
hold any other cash funds that are not held under the Account B structure.
The Account A structure comprises a panel bank arrangement administered by the
agent bank, Bank of New York Mellon ('AA-'/Stable/'F1+'). Funds, excluding cash
accumulations accruing for payment of bullet note maturities may be deposited
with individual panel banks for a period of up to 90 days, or until the next
quarterly interest payment date. Cash accumulations accruing for payment of
bullet note maturities may not be deposited for periods of more than 30 days.
Deposits will only be made to panel banks rated at or above 'A' and 'F1'. A
minimum of 4 institutions will act as panel banks, and no more than one-third of
Account A funds will be deposited with an individual panel bank for greater than
30 days if its ratings are less than 'AA-'/Stable/'F1+'.
Fitch notes that the 90-day exposure period exceeds the 30-day remedial period
envisaged under its counterparty criteria. However, in Fitch's opinion, the
extended risk horizon (i.e. 90 days compared with 30 days) is mitigated by the
concentration limits applied under the panel arrangement and the adequacy of
transaction cash flows. Specifically, Fitch has tested the scenario where one of
the panel banks default during the 90-day holding period with a loss of funds
held by the affected bank. In this scenario, the ratings of the notes were not
impacted. In Fitch's opinion, the resilience of the ratings also mitigate the
first-to-default risk associated with the use of multiple account banks.
The Account B structure is intended to hold only non-time sensitive funds. For
example, Account B may hold up to 50% of the issuer's non-bullet principal
accumulations. The funds will be deposited with Santander UK plc, as long as the
bank holds a minimum rating of 'BBB+'/'F2' and certain trust performance
triggers are not breached.
Fitch notes that the minimum rating of the Account B bank is not consistent with
its counterparty criteria (i.e. 'BBB+'/'F2' compared with 'A'/'F1'). However, in
Fitch's opinion this is mitigated by the combination of (i) Funding acquiring an
additional share to the trust property which may be used to set-off against
exposure to Account B, and (ii) the non-time sensitive nature of the cash
Funding is the investor share of the Trust that has issued the outstanding notes
under Holmes Master Issuer Plc. The remaining portion of the trust remains with
the Seller (the Seller's Share).
Under the amended structure, cash holdings in Account B will be accompanied by a
one-for-one increase in Funding's share of the trust property. The increase will
be achieved by the provision of a subordinated loan from the seller to Funding
that will be applied to purchase an additional share of the trust property. Any
losses incurred by Funding under the Account B structure will be offset against
the loan provided by the seller. In effect, any cash losses by Funding will be
compensated for by the additional share of the trust property.
In addition to the minimum rating, the Account B arrangement will only continue
as long as the reserve fund has not been drawn (this condition will not be
curable), no bond has failed to be called on its scheduled maturity date, there
have been no non-asset trigger events, and there are outstanding Z-Notes
remaining in the programme. Fitch considers that the combination of additional
triggers is particularly relevant given that the additional receivables are only
provided on a one-for-one basis.