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Moody's assigns provisional ratings to RMBS Notes to be issued by Canada Square Funding 6 PLC

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Rating Action: Moody's assigns provisional ratings to RMBS Notes to be issued by Canada Square Funding 6 PLCGlobal Credit Research - 24 Jan 2022GBP [] million RMBS Notes rated, relating to a portfolio of UK residential mortgage loansLondon, 24 January 2022 -- Moody's Investors Service ("Moody's") has assigned provisional ratings to Notes to be issued by Canada Square Funding 6 PLC:....GBP []M Class A Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Aaa (sf)....GBP []M Class B Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Aa2 (sf)....GBP []M Class C Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Aa3 (sf)....GBP []M Class D Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)A3 (sf)....GBP []M Class E Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Baa3 (sf)....GBP []M Class X1 Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Ba3 (sf)....GBP []M Class X2 Mortgage Backed Floating Rate Notes due January 2059, Assigned (P)Caa1 (sf)Moody's has not assigned any ratings to the GBP []M VRR Loan Note due January 2059, the Class S1 Certificate due January 2059, the Class S2 Certificate due January 2059 and the Class Y Certificate due January 2059.RATINGS RATIONALEThe Notes are backed by a pool of UK buy-to-let ("BTL") mortgage loans originated by Fleet Mortgages Limited ("Fleet", NR), Topaz Finance Limited ("Topaz", NR), Landbay Partners Limited ("Landbay", NR) and Hey Habito Ltd ("Habito", NR). The pool was acquired by Citibank, N.A., London Branch (Aa3/(P)P-1 & Aa3(cr)/P-1(cr)) from each originator.The portfolio of assets amounts to approximately GBP 364 million as of the 31 November 2021 pool cut-off date. The Reserve Fund will be partially funded to 1% of the Class A Notes' balance at closing. The VRR Loan Note is a risk retention Note which receives 5% of all available receipts, while the remaining Notes and Certificates receive 95% of the available receipts on a pari-passu basis.The ratings are based on the credit quality of the portfolio, the structural features of the transaction and its legal integrity.According to Moody's, the transaction benefits from various credit strengths such as a granular portfolio and an amortising liquidity reserve initially sized at 1.0% of 100/95 of the outstanding Class A Notes, with a floor of 1.0% of 100/95 prior to the step-up date and no floor post step-up date in January 2027. The liquidity reserve fund supports the Class S1 Certificate, Class S2 Certificate and interest on the Class A Notes. The target amount of the liquidity reserve fund is 1.25% of 100/95 of the outstanding Class A Notes. Principal receipts are used to fund the reserve fund from 1.0% up to its target and release amounts from the liquidity reserve fund will flow through the principal waterfall. There is no general reserve fund.Moody's determined the portfolio lifetime expected loss of 1.5% and Aaa MILAN credit enhancement ("MILAN CE") of 13.0% related to borrower receivables. The expected loss captures our expectations of performance considering the current economic outlook, while the MILAN CE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and MILAN CE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in the ABSROM cash flow model to rate RMBS.Portfolio expected loss of 1.5%: This is broadly in line with the UK BTL RMBS sector and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account: (i) the collateral performance of originated loans to date, as provided by the originators; (ii) the performance of previously securitised portfolios, with cumulative losses of 0% to date; (iii) the fact that some originators are new and have a limited track record; (iv) below 1% of satisfied CCJs in the pool; (v) 19.8% of the loans in the pool backed by multifamily properties; (vi) the current macroeconomic environment in the UK and the impact of future interest rate rises on the performance of the mortgage loans; and (vii) benchmarking with other UK BTL transactions.MILAN CE for this pool is 13.0%, which is in line with other UK BTL RMBS transactions, owing to: (i) the WA current LTV for the pool of 71.9%; (ii) top 20 borrowers constituting 8.3% of the pool; (iii) static nature of the pool; (iv) the fact that 94.4% of the pool are interest-only loans; (v) the share of self-employed borrowers of 56.5%, and legal entities of 53.0%; (vi) the presence of 19.8% of MUB loans in the pool; and (vii) benchmarking with similar UK BTL transactions.Operational Risk Analysis: Fleet, Topaz, Landbay and Habito are the servicers in the transaction whilst Citibank, N.A., London Branch, will be acting as the cash manager. In order to mitigate the operational risk, CSC Capital Markets UK 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 three most recent servicer reports available to determine the cash allocation in case no servicer report is available. The transaction also benefits from approx. 2 quarters of liquidity for Class A Notes based on Moody's calculations. Finally, there is principal to pay interest mechanism as a source of liquidity for the Classes A to E which is available either when the relevant tranches PDL does not exceed 10%, or when the relevant class of Notes becomes the most senior class without any other condition.Interest Rate Risk Analysis: 92.8% of the loans in the pool are fixed rate loans reverting to BBR. The Notes are floating rate securities with reference to daily SONIA. To mitigate the fixed-floating mismatch between fixed-rate assets and floating-rate liabilities, there will be a scheduled notional fixed-floating interest rate swap provided by BNP Paribas (Aa3 (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 DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Son Nguyen Asst Vice President - 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 Barbara Rismondo 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 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. 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