Feb 7 - Fitch Ratings has downgraded Mortgages No.7 Plc's class C, D, and E
notes, as follows:
Class A2 (ISIN XS0225922110): affirmed at 'AAAsf'; Outlook Stable
Class B (ISIN XS0225922383): affirmed at 'AA+sf'; Outlook Stable
Class C (ISIN XS0225922466): downgraded to 'Asf' from 'A+sf'; Outlook Stable
Class D (ISIN XS0225922623): downgraded to 'BBBsf' from 'BBB+sf'; Outlook Stable
Class E (ISIN XS0225922896): downgraded to 'Bsf' from 'BBsf'; Outlook Stable
The downgrades follow the recent downward adjustment of the transaction's
reserve fund. As of the January 2013 interest payment date, the required amount
of the reserve fund was revised downwards to an amount equivalent to the balance
of the reserve fund at the point when amortisation was no longer permitted
(October 2008). Following the revised interpretation of the transaction
documents, the fully funded cash reserve was reduced to GBP5.3m from GBP7.5m,
representing a difference of 1.2% of the outstanding note balance.
This decrease in the reserve fund has led to a decline in credit enhancement
levels, which has most affected the junior end of the capital structure. In
particular, Fitch considers that the lower credit support available to the class
C, D and E notes was no longer commensurate with their ratings and has
consequently downgraded them.
The transaction's performance has remained stable over the past year, but loans
in arrears by three months or more (currently 23.3%) are relatively high
compared with peer transactions. Additionally, Fitch notes that Mortgages 7 has
slightly more adverse pool characteristics and is less seasoned than Mortgages
6. Thus, the lower ratings on the class C, D and E notes of Mortgages 7 relative
to Mortgages 6 reflect Fitch's expectations of a higher default probability and
lower recovery rates for the more recent transaction.
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Sources of information - in addition to those mentioned in the applicable
criteria, the sources of information used to assess these ratings were investor
and servicer reports.
Applicable criteria, 'EMEA Residential Mortgage Loss Criteria' dated 7 June
2012, 'EMEA Residential Mortgage Loss Criteria Addendum - United Kingdom' dated
9 August 2012 and 'Global Structured Finance Rating Criteria' dated 6 June 2012,
are available at www.fitchratings.com.
Applicable Criteria and Related Research:
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - United Kingdom - Mortgage and Cashflow Assumptions
Global Structured Finance Rating Criteria