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Hops Hill No.1 plc -- Moody's assigns provisional ratings to RMBS Notes to be issued by Hops Hill No.1 plc

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Rating Action: Moody's assigns provisional ratings to RMBS Notes to be issued by Hops Hill No.1 plc

Global Credit Research - 11 Jan 2021

GBP [] million RMBS Notes rated, relating to a portfolio of UK Buy-to-Let mortgage loans

NOTE: On January 13, 2021, the press release was corrected as follows: In the ninth paragraph of the REGULATORY DISCLOSURES section, the hyperlink was changed to https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. Revised release follows.

London, 11 January 2021 -- Moody's Investors Service ("Moody's") has assigned provisional credit ratings to the following Notes to be issued by Hops Hill No.1 plc:

....GBP []M Class A Mortgage Backed Floating Rate Notes due [May 2054], Assigned (P)Aaa (sf)

....GBP []M Class B Mortgage Backed Floating Rate Notes due [May 2054], Assigned (P)Aa1 (sf)

....GBP []M Class C Mortgage Backed Floating Rate Notes due [May 2054], Assigned (P)Aa3 (sf)

....GBP []M Class D Mortgage Backed Floating Rate Notes due [May 2054], Assigned (P)A2 (sf)

The GBP []M Class X Floating Rate Notes due [May 2054] and the GBP []M Class Z Variable Funded Note due [May 2054] have not been rated by Moody's.

The Notes are backed by a pool of UK buy-to-let ("BTL") mortgage loans originated by Keystone Property Finance Limited. The originator sold the beneficial title to UK Mortgages Corporate Funding DAC. The securitised portfolio consists of 1,465 mortgage loans with a current balance of GBP 316 million as of 30 November 2020. However, it is envisaged that on the closing date part of the proceeds of the Notes issuance will be deposited in a separate ledger, and subsequently be used before the first note payment date in May 2021 (pre-funding period) to finance the purchase by the issuer of additional loans. In addition, all principal received during the pre-funding period can be used to add new loans to the pool. Loans added to the pool during the pre-funding period have to comply with the pre-funding eligibility criteria.

RATINGS RATIONALE

The ratings of the Notes are based on an analysis of the characteristics and credit quality of the underlying buy-to-let mortgage pool, sector-wide and originator specific performance data, protection provided by credit enhancement, the roles of external counterparties and the structural features of the transaction.

MILAN CE for this pool is 16.0%, and the expected loss is 2.5%.

The portfolio's expected loss is 2.5%, which is higher than other UK BTL RMBS transactions, because of (1) the WA current LTV of the pool of 71.4%, (2) the performance of comparable originators, (3) the expected outlook for the UK economy in the medium term and (4) benchmarking with similar UK BTL transactions.

MILAN CE for this pool is 16.0%, which is higher than that other UK BTL RMBS transactions, because of (1) the WA current LTV of the pool of 71.4%, (2) the fact that the top 20 borrowers constitute 9.8% of the pool, (3) the fact that 94.4% of the pool are IO loans, (4) the share of self-employed borrowers is 25.2%, and that of legal entities (with full recourse to borrowers) is 52.5%, (5) the presence of 21.6% of House in Multiple Occupation (HMO) and Multi-Unit Block (MUB) loans in the pool and (6) the benchmarking with similar UK BTL transactions.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer corporate assets from the current weak UK economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

At closing, the transaction benefits from a fully funded, non-amortising general reserve fund that equals 2.0% of the principal amount outstanding on the closing date of the collateralized notes balance. The general reserve fund is made of: (i) an amortising liquidity reserve fund equal to 1.5% of the principal amount outstanding of the Class A and Class B Notes and (ii) a non-amortising credit reserve equal to the difference of the general reserve fund and liquidity reserve balance.

Operational Risk Analysis: Pepper (UK) Limited is the servicer in the transaction whilst Citibank N.A., London Branch, will be acting as the cash manager. To mitigate the operational risk, Intertrust Management Limited (NR) will act as back-up servicer facilitator. To ensure payment continuity over the transaction's lifetime, the transaction documentation incorporates estimation language whereby the cash manager can use the most recent servicer reports available to determine the cash allocation in case no servicer report is available. Finally, there is principal to pay interest as an additional source of liquidity for the Classes A to D. Principal can be used to pay interest on Class A without any conditions. For class B, it can be used provided that either it is the most senior class outstanding or that there is no PDL outstanding on that class. For Class C and D notes, the only condition applying is that the class of notes has to be the most senior outstanding.

Interest Rate Risk Analysis: 100% of the loans in the pool are fixed-rate loans reverting to BBR or three months LIBOR. The Notes are floating rate securities with reference to daily SONIA. To mitigate the fixed-floating mismatch between fixed-rate assets and floating liabilities, there will be a fixed-floating interest rate swap provided by National Australia Bank Limited (Aa2(cr)/P-1(cr)).

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1248130. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Please see "Moody's Approach to Rating RMBS Using the MILAN Framework" for further information on Moody's analysis at the initial rating assignment and the on-going surveillance in RMBS.

Factors that would lead to an upgrade or downgrade of the ratings:

Significantly different actual losses compared with our expectations at close due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in a downgrade of the ratings. Deleveraging of the capital structure or conversely a deterioration in the Notes available credit enhancement could result in an upgrade or a downgrade of the ratings, respectively.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Duy-Anh Bui Analyst Structured Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Anthony Parry Senior Vice President/Manager Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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