The FINANCIAL — London-06 June 2011: Fitch Ratings has assigned Phedina Hypotheken 2011-I B.V.'s EUR1,500bn mortgage-backed notes expected ratings, as follows:
EUR300,000,000 floating-rate Class A1 mortgage-backed notes: 'AAAsf(exp)'; Outlook Stable; Loss Severity Rating 'LS-1'
EUR1,130,000,000 floating-rate Class A2 mortgage-backed notes: 'AAAsf(exp)'; Outlook Stable; Loss Severity Rating 'LS-1'
EUR70,000,000 floating-rate Class B mortgage-backed notes: 'BBBsf(exp)'; Outlook Stable; Loss Severity Rating 'LS-1'
EUR30,000,000 floating-rate Class C mortgage-backed notes: not rated
The final ratings are subject to the receipt of final documents conforming to information already received.
The notes are backed by mortgage loans originated in the Netherlands and owned by BNP Paribas Personal Finance B.V. (BNP PF or the seller, unrated) a wholly-owned subsidiary of BNP Paribas S.A. (BNP Paribas, rated 'AA-'/Stable/'F1+'). The expected ratings are based on Fitch's assessment of the underlying collateral, available credit enhancement (CE), the seller's origination and underwriting procedures, the servicing capabilities of BNP PF and Novalink B.V. and the transaction's financial and legal structure.
CE for the class A notes will initially total 6.67%, which is provided by the subordination of the class B notes (4.67%) and a fully funded non-amortising reserve account (2.00%). Throughout the transaction's life, the reserve account can be used to pay shortfalls of interest due on the class A notes only. Once the outstanding balance of the mortgages has been reduced to zero, the reserve fund will then be available to pay principal due on the class A notes, interest due on the class B notes and principal due on the class B notes, among other things. As such, the reserve fund covers liquidity risk during the transaction and covers credit risk at the end of the transaction. Under the interest rate swap agreement, the swap counterparty pays the interest on the notes in exchange for the scheduled interest on the mortgages, interest earned on the guaranteed investment contract account, less senior fees and excess spread of 0.50%.
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 23 February 2010 and "EMEA Criteria Addendum – Netherlands", dated 8 March 2011, which are available on www.fitchratings.com). The agency assessed the transaction cash flows using default and loss severity assumptions indicated by the default model 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.
BNP PF provided Fitch with a loan-by-loan data template which was of good quality. The collateral review of the mortgage portfolio involves reviewing vintage performance data which Fitch uses to validate its frequency of foreclosure assumptions. BNP PF was able to provide the agency with (i) dynamic three-month plus arrears data; and (ii) cumulative six-month plus arrears data by vintage. In Fitch's opinion, mortgage loans originated by BNP PF in the earlier vintages have performed worse than other Dutch lenders, whilst loans originated in recent years have outperformed other Dutch lenders. Although 84% of the pool has been originated from January 2008, there is limited performance data relating to these vintages. Consequently, Fitch has applied an increase to its standard frequency of foreclosure assumptions.
BNP PF also provided loan-by-loan repossession data on all foreclosed properties over the past few years, which Fitch uses to validate its loss severity and recovery assumptions. In Fitch's opinion, the estimated quick sale adjustment, loss severity and recovery rates were slightly better than other lenders, Consequently, Fitch did not apply any additional adjustments to the standard assumptions.
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