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Tower Bridge Funding 2020-1 plc -- Moody's assigns provisional ratings to RMBS Notes to be issued by Tower Bridge Funding 2020-1 plc

Rating Action: Moody's assigns provisional ratings to RMBS Notes to be issued by Tower Bridge Funding 2020-1 plc

Global Credit Research - 13 Jul 2020

Madrid, July 13, 2020 -- Moody's Investors Service ("Moody's") has assigned provisional credit ratings to the following Classes of Notes to be issued by Tower Bridge Funding 2020-1 plc:

....GBP []M Class A Mortgage Backed Floating Rate Notes due September 2063, Assigned (P)Aaa (sf)

....GBP []M Class B Mortgage Backed Floating Rate Notes due September 2063, Assigned (P)Aa1 (sf)

....GBP []M Class C Mortgage Backed Floating Rate Notes due September 2063, Assigned (P)A2 (sf)

....GBP []M Class D Mortgage Backed Floating Rate Notes due September 2063, Assigned (P)Baa2 (sf)

....GBP []M Class E Mortgage Backed Floating Rate Notes due September 2063, Assigned (P)Ba2 (sf)

Moody's has not assigned ratings to the GBP []M Class X Floating Rate Notes due September 2063, the GBP []M Class Z1 Notes due September 2063, or the GBP []M Class Z2 Notes due September 2063.

This transaction represents the fifth securitisation transaction that is backed by buy-to-let mortgage loans and non-conforming loans originated by Belmont Green Finance Limited ("Belmont Green", not rated).

The portfolio consists of 1,811 loans, secured by first ranking mortgages on properties located in the UK, of which 77.5% are buy-to-let and 22.5% are owner occupied. The current pool balance was approximately GBP 349.1 million as of 31st May 2020, the provisional portfolio reference date.

RATINGS RATIONALE

The ratings take into account the credit quality of the underlying mortgage loan pool, from which Moody's determined the MILAN Credit Enhancement ("MILAN CE") and the portfolio expected loss, as well as the transaction structure and legal considerations. The expected portfolio loss of 5.0% and the MILAN required CE of 20.0% serve as input parameters for Moody's cash flow model and tranching model.

The expected loss is 5.0%, which is in line with other recent UK non-conforming transactions and takes into account: (i) the proportion of the portfolio having some adverse credit (9.8%); (ii) the relatively high proportion of buy-to-let loans (77.5%) and interest-only loans (75.9%); (iii) the weighted average current LTV of 72.0%; (iv) the lack of historical performance data from the originator in particular through any economic downturn; (v) the current macroeconomic environment and our view of the future macroeconomic environment in the UK taking into account the impact of Covid-19 outbreak as well as Brexit; (vi) the 28.5% exposure to Covid-19 related payment holidays as of 31 May 2020 in terms of the closing pool outstanding balance; and (vii) benchmarking with similar transactions in the UK non-conforming sector.

MILAN CE for this pool is 20.0%, which is in line with other recent UK non-conforming transactions and takes into account: (i) the current LTV of 72.0%; (ii) borrowers with adverse credit history (9.8%); (iii) lack of seasoning of the originated loans (c. 0.5 years); (iv) less standard income streams of the underlying borrowers (32.7% Self-employed borrowers); (v) loans to expatriate borrowers (69.1%) or companies (22.7%), where the loans are for buy-to-let purposes; and (vi) the limited track record of the originator.

The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of consumer assets from the collapse in the UK economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. 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 non-amortising General Reserve Fund will be fully funded to 2.5% of the closing principal balance of the mortgage backed Notes i.e. GBP [] million. The General Reserve Fund will be replenished from the interest waterfall after the PDL cure of the Class E Notes and can be used to pay senior fees and costs, interest and PDL on the Class A-E Notes. The Liquidity Reserve Fund target is 1.5% of the outstanding Class A and B Notes and is funded by the diversion of principal receipts until the target is met. Once the Liquidity Reserve Fund is fully funded, it will be replenished from the interest waterfall. The Liquidity Reserve Fund is available to cover senior fees, costs and Class A and B Notes interest only. Amounts released from the Liquidity Reserve Fund will flow down the principal priority of payments. The Class A Notes, or if these are not outstanding, the most senior Notes outstanding at that time, further benefit from a principal to pay interest mechanism.

Additionally, the transaction benefits from a payment holiday reserve fund that will be fully funded at closing and available until the IPD of September 2021. Its level at closing is 0.75% of the principal-backed-notes and it will be decreased gradually over the first 4 IPDs until it is at 0.0% in September 2021.

Operational Risk Analysis: Although Belmont Green is the servicer in the transaction, it delegates all the servicing to Homeloan Management Limited, "HML" (not rated, parent Computershare Ltd rated Baa2). U.S. Bank Global Corporate Trust Limited ("US Bank", not rated) will be the cash manager. Although US Bank is not rated, it is part of the U.S. Bancorp (A1/P-1). In order to mitigate the operational risk, CSC Capital Markets UK Limited (not rated) will act as back-up servicer facilitator. To ensure payment continuity over the transaction's lifetime, the transaction documents incorporate estimation language, whereby the cash manager can use the three most recent monthly servicer reports to determine the cash allocation in case no servicer report is available. The transaction also benefits from the equivalent of at least 10 months of liquidity for Class A notes once the Liquidity Reserve has been funded from principal, to supplement the General Reserve which is funded in full to 2.5% of the principal-backed Notes at closing.

Interest Rate Risk Analysis: majority of mortgages in the pool (99.8%) carry a fixed rate of interest. The transaction benefits from a swap agreement to mitigate the fixed-floating mismatch between the initial fixed rate paid by the mortgages and the SONIA paid under the Notes. The swap provider is NatWest Markets Plc (Baa2/P-2; A3(cr)/P-2(cr)). Over time, all the loans in the portfolio will reset from fixed rate to a floating rate linked to LIBOR or Belmont Green's base rate (Vida Variable Rate "VVR"). As is the case in many UK RMBS transactions, this basis risk mismatch between the floating rate on the underlying loans and the floating rate on the Notes will be unhedged. Moody's has applied a stress to account for the basis risk on the mortgage loans linked to LIBOR and Belmont Green VVR, in line with the stresses applied to the various types of unhedged basis risk seen in UK RMBS.

Moody's issues provisional ratings in advance of the final sale of securities, but these ratings represent only Moody's preliminary credit opinions. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a provisional rating. Other non-credit risks have not been addressed but may have a significant effect on yield to investors.

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1228742. 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:

Factors that may cause an upgrade of the ratings of the Notes include significantly better than expected performance of the pool together with an increase in credit enhancement of Notes.

Factors that would lead to a downgrade of the ratings include: (i) increased counterparty risk leading to potential operational risk of servicing or cash management interruptions; and (ii) economic conditions being worse than forecast resulting in higher arrears and losses.

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_1133569.

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

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.

Rodrigo Conde Asst Vice President - Analyst Structured Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Armin Krapf VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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