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���������ֳ� - London - 07 Oct 2020: ���������ֳ� has downgraded two and affirmed 22 tranches of the Newgate Funding Plc (NF) 2007 RMBS series. The agency has also revised the Outlook on one tranche to Negative from Stable. A full list of rating actions is provided below.

Transaction Summary

All three transactions are seasoned true-sale securitisations of mixed pools containing mainly residential non-conforming owner-occupied (OO) mortgage loans with few residential buy-to-let (BTL) mortgage loans.

KEY RATING DRIVERS

Coronavirus Additional Assumptions

We expect a generalised weakening in borrowers' ability to keep up with mortgage payments due to the economic impact of the coronavirus pandemic and the related containment measures. As a result, ���������ֳ� has applied updated criteria assumptions to the mortgage portfolio of the Newgate Funding transactions.

The combined application of revised 'Bsf' representative pool weighted average foreclosure frequency (WAFF), revised rating multiples and arrears adjustment for both the OO and the BTL sub-pools, resulted in a multiple to the current FF assumptions of 1.4x at 'Bsf' and of about 1.1x at 'AAAsf'. The updated assumptions are more modest for higher rating levels as the corresponding rating assumptions are already meant to withstand more severe shocks.

���������ֳ� also applied a payment holiday stress to the first six months of projections, by assuming up to 25% of interest collections will be lost, and related principal receipts will be delayed. This reflects overall the current payment holiday percentage data reported in the investor reports. The payment holiday percentage for these pools as of September 2020 investor reports was 31.4% for Negate 2007-1, 20.4% for Newgate 2007-2 and 22% for Newgate 2007-3.

The downgrades are driven by the impact of the coronavirus assumptions on the current ratings. The Negative Outlooks reflect the tranches' subordination in the transaction structure and hence their greater sensitivity to a more severe coronavirus scenario than our base line described in the rating sensitivities section.

Weakening Asset Performance

Arrears for Newgate 2007-1, 2007-2 and 2007-3 have been steadily increasing in the last nine months. The total current balance of borrowers with more than three monthly arrears has increased between December 2019 and September 2020 to 14% from 11.3% (2007-1), 14.7% from 11.8% (2007-2) and 9.4% from 7.9% (2007-3) of the outstanding balance of mortgage loans. Nevertheless, the levels of arrears are still well below the peak reached in 2011 and 2012. ���������ֳ� applied a foreclosure frequency floor for loans in arrears to account for the increased default risk.

Back-loaded Default Risks

All pools contain a high share of interest-only loans and a significant share of borrowers with self-certified income resulting in elevated refinancing risks later in the life of the transactions. This combination led ���������ֳ� to apply a performance adjustment factor floor at 1, in line with its UK RMBS Rating Criteria.

Pro-Rata Pay

All three transactions have been repaying notes on a pro-rata basis, which resulted in a non-amortising fully funded reserve fund being the sole driver of an increase in credit enhancement (CE).

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and, potentially, upgrades. ���������ֳ� tested an additional rating sensitivity scenario by applying a decrease in the FF of 15% and an increase in the RR of 15%. The results indicate up to a three-notch upgrade for the mezzanine and junior notes.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The broader global economy remains under stress from the coronavirus pandemic, with surging unemployment and pressure on businesses stemming from social-distancing guidelines. Recent government measures related to the coronavirus pandemic initially introduced a suspension on tenant evictions for three months and mortgage payment holidays, also for up to three months. ���������ֳ� acknowledges the uncertainty of the path of coronavirus-related containment measures and has therefore considered more severe economic scenarios.

As outlined in "���������ֳ� Coronavirus Scenarios: Baseline and Downside Cases," ���������ֳ� considered a more severe downside coronavirus scenario for sensitivity purposes whereby a more severe and prolonged period of stress is assumed with a halting recovery from 2Q21. Under this scenario, ���������ֳ� assumed a 15% increase in WAFF and a 15% decrease in weighted average recovery rate (WARR). The results indicate up to a seven-notch downgrade for the mezzanine and junior notes.

The economic impact of the coronavirus pandemic could considerably affect borrower affordability, especially in legacy portfolios where borrowers are locked into paying high interest on their mortgage loans. The transactions' performance may be affected by such changes in market conditions and the general economic environment. A weakening economic environment is strongly correlated with increasing levels of delinquencies and defaults that could reduce CE available to the notes.

Unanticipated declines in recoveries could also result in lower net proceeds, which may make certain notes' ratings susceptible to negative rating actions depending on the extent of the decline in recoveries. ���������ֳ� conducts sensitivity analyses by stressing both a transaction's base-case FF and RR assumptions and by examining the rating implications on all classes of issued notes.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

CRITERIA VARIATION

The ratings on the class D and E notes of NF 2007-3 of 'A-sf' and 'BBB+sf', respectively, are two notches above their model-implied ratings in ���������ֳ�'s updated rating analysis. According to ���������ֳ�'s UK RMBS Rating Criteria, as outlined in the Rating Determination paragraph, where an updated analysis results in a difference between the current rating and model-implied rating of no more than three notches, ratings may be affirmed or assigned in line with the model-implied rating.

���������ֳ� applied a criteria variation as the lower model-implied rating stemmed from just one scenario of high prepayments, rising interest rates and front-loaded default scenarios, which does not represent ���������ֳ�'s immediate expectations for this transaction. The current ratings were for the class D and E notes were derived by excluding this scenario.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, ���������ֳ� in relation to this rating action.

DATA ADEQUACY

���������ֳ� has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that affected the rating analysis. ���������ֳ� has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

���������ֳ� did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment, and ���������ֳ� is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall and together with the assumptions referred to above, ���������ֳ�'s assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Newgate 2007-1, 2007-2, 2007-3 have ESG Relevance Score of 4 for Human Rights, Community Relations, Access & Affordability due to the underlying asset pools with limited affordability checks and self-certified income, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Newgate 2007-1, Newgate 2007-2, Newgate 2007-3 have ESG Relevance Score of 4 for Customer Welfare - Fair Messaging, Privacy & Data Security due to a material concentration of interest-only loans, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ���������ֳ�'s ESG Relevance Scores, visit .

Additional information is available on

Applicable Models

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Multi-Asset Cash Flow Model, v2.8.0 (1)
• ResiGlobal Model: UK, v1.2.2 (1)

Additional Disclosures

• Dodd-Frank Rating Information Disclosure Form
• Solicitation Status
• Endorsement Policy

Endorsement Status