Rating Action Commentary
ֳ Downgrades EuroMASTR Series 2007-1V plc's Class D and E Notes
Mon 17 Mar, 2025 - 11:09 AM ET
ֳ - London - 17 Mar 2025: ֳ has downgraded EuroMASTR Series 2007-1V plc 's class D and E notes and affirmed the others. A full list of rating actions is below.
Transaction Summary
The transaction is a securitisation of owner-occupied (OO) and buy-to-let mortgages originated in the UK by Victoria Mortgage Funding and serviced by BCMGlobal Mortgage Services Limited.
KEY RATING DRIVERS
Asset Portfolio Reducing, Weak Performance: As of the December 2024 payment date, one-month plus and three-month plus arrears were 36.4% and 25.5%, respectively, (33.8% and 19.6% at the December 2023 payment date). The arrears levels as a percentage of the total pool are considerably higher than in peer transactions. Limited repossession activities since 2019, which could reduce late stage arrears figures, remain a key driver of the high arrears percentagein the pool.
However, the number of loans in arrears and the notional amount of loans in arrears have decreased compared with 12 months ago, suggesting some stabilisation in arrears build-up. Despite this decline, the risk of migration to late-stage arrears remains a significant rating driver. This is especially pertinent given the small size of the pool (GBP35.9 million as of November 2024 pool cut-off date), which implies that even a small number of loans moving into arrears could significantly impact the applied weighted average foreclosure frequency (WAFF) on the outstanding portfolio.
Downgrades Reflect Increased Third-Party Fees: The downgrades of the class D and E notes reflects persistently high third-party fees in the transaction, contrary to our expectation that fees would reduce after completion of SONIA transition for notes and mortgage loans. ֳ has increased its annual senior fee assumption to align with current levels in the transaction. Due to the elevated arrears, and their increase as a percentage of the outstanding portfolio balance, loan management costs are now higher than our criteria assumptions. Given their junior position in the waterfall, this dynamic resulted in lower model-implied ratings for the class D and E notes, leading to their downgrades.
Pool Granularity and Tail Risk: The Negative Outlooks on the class D and E notes reflect ֳ's expectation that pool granularity will continue to reduce, leading to an increase in borrower concentration. This risk is further heightened by the notes' exposure to significant tail risk due to interest-only (IO) OO loans, which account for 79.2% of the loan portfolio. Consequently, the notes' repayment is heavily dependent on the extent to which these IO OO loans meet their bullet obligations, particularly between 2030 and 2032, when a significant portion mature.
GRF Below Target: The transaction benefits from a general reserve fund (GRF), which provides liquidity to the class A to E notes. As of the December 2024 payment date, the GRF was below target, at 75% of the target amount due to its depletion by larger third party fees, and it has not yet been fully replenished.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The transaction's performance may be affected by adverse changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing delinquencies and defaults that could reduce credit enhancement available to the notes.
Additionally, unanticipated declines in recoveries could result in lower net proceeds, which may make certain notes susceptible to negative rating action, depending on the extent of the decline in recoveries. ֳ found that a 15% WAFF increase and a 15% weighted average recovery rate (WARR) decrease would result in downgrades of three notches for the class C notes and four notches for the the class D notes. This sensitivity would result in a downgrade of the class E notes to the distressed rating category.
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 credit enhancement and potentially upgrades. ֳ found that a 15% decrease in the WAFF and a 15% increase in the WARR would lead to upgrades of four notches for the class D notes, and up to five notches for the class E notes.
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 pool and the transaction. ֳ 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 pool ahead of EuroMASTR Series 2007-1V plc's initial closing. The subsequent performance of the transaction 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 any 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
EuroMASTR Series 2007-1V plc has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to compliance risks including fair lending practices, mis-selling, repossession/foreclosure practices and consumer data protection (data security), which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
EuroMASTR Series 2007-1V plc has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to accessibility to affordable housing, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| EuroMASTR Series 2007-1V plc | UK Issued, EU Endorsed |