(The following statement was released by the rating agency)
Dec 28 -
-- Van Lanschot is the originator and servicer for Citadel 2010-I and Citadel 2010-II. Our ratings on the class C notes in both transactions are weak-linked to the long-term ICR on Van Lanschot as we do not stress set-off risk in our cash flow analysis.
-- On Nov. 16, 2012, we lowered our long-term ICR on Van Lanschot to ‘BBB+’ from ‘A-’ based on our view of the Netherlands’ weakening economy.
-- Consequently, we have today lowered to ‘BBB+’ from ‘A- (sf)’ our ratings on Citadel 2010-I and 2010-II’s class C notes to be in line with the long-term ICR on Van Lanschot.
-- These RMBS transactions are backed by Dutch residential mortgages originated and serviced by Van Lanschot.
Standard & Poor’s Ratings Services today lowered to ‘BBB+ (sf)’ from ‘A- (sf)’ its credit ratings on Citadel 2010-I B.V.’s and Citadel 2010-II B.V.’s class C notes. Our ratings on the class A and B notes in both transactions remain unaffected by today’s rating actions.
Today’s rating actions follow our lowering of our long-term counterparty rating on F. van Lanschot Bankiers N.V. (Van Lanschot; BBB+/Stable/A-2) to ‘BBB+’ from ‘A-’ on Nov. 16, 2012 (see “Dutch Private Bank F. van Lanschot Bankiers Ratings Lowered To ‘BBB+’ On Weaker Economic Environment; Outlook Stable”).
Van Lanschot is the originator, seller, and servicer for the Citadel 2010-I and 2010-II transactions. Van Lanschot is a Dutch private bank targeting high net worth individuals. As Van Lanschot is a deposit-taking institution, borrowers in the pool may have considerable amounts of cash deposited with it and may try to set off such amounts against amounts owed to Citadel 2010-I and 2010-II if Van Lanschot defaults.
Under the transaction documents, if the seller is downgraded below ‘BBB+', it is obliged to notify the borrowers that the mortgage loan has been sold to the issuer. Although we believe that this notification process partially mitigates set-off risk, it does not completely eliminate it. Data show that for both transactions, set-off exposure has always been below 10% of the mortgage pool’s balance. Under the documentation, the seller has been obliged to cash-collateralize this exposure to the extent that it exceeds 10%. We took this risk into account in our cash flow analysis when we assigned our ratings to the class A and B notes, by assuming that in a ‘AAA’ scenario, 10% of the collateral is lost due to set-off risk.
Our ratings on Citadel 2010-I and 2010-II’s class A and B notes are unaffected by the downgrade of Van Lanschot. However, our ratings on the class C notes are weak-linked to the long-term issuer credit rating (ICR) on Van Lanschot as originator. This means that we have not stressed set-off risk in our cash flow analysis of these notes. We have therefore lowered to ‘BBB+ (sf)’ from ‘A- (sf)’ our ratings on Citadel 2010-I and 2010-II’s class C notes to be in line with the ICR on Van Lanschot.
Van Lanschot is the originator and servicer of the collateral that backs these Citadel transactions.
-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012
-- Principles Of Credit Ratings, Feb. 16, 2011
-- Methodology: Credit Stability Criteria, May 3, 2010
-- Methodology And Assumptions: Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009
-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008
-- Dutch RMBS Market Overview And Criteria, Dec. 16, 2005
-- Cash Flow Criteria for European RMBS Transactions, Nov. 20, 2003
-- Dutch Private Bank F. van Lanschot Bankiers Ratings Lowered To ‘BBB+’ On Weaker Economic Environment; Outlook Stable, Nov. 16, 2012
-- Ratings Affirmed In Dutch RMBS Transactions Citadel 2010-I And Citadel 2010-II, Aug. 14, 2012
-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012
-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011
-- New Issue: Citadel 2010-II B.V., Aug. 5, 2010
-- New Issue: Citadel 2010-I B.V., July 20, 2010
-- Dutch RMBS Index Report (published quarterly)