Hadrian Funding 2025-1 PLC has issued £711.4 million ($966.26 million) in RMBS notes relating to a portfolio of U.K. residential mortgage loans.
Hadrian Funding 2025-1 PLC is a securitization of 4,841 prime residential owner-occupied (OO) mortgages originated in England, Scotland and Wales totaling £884.8 million ($1.2 billion) by Newcastle, U.K.-based Newcastle Building Society. This represents the first issuance by Newcastle Building Society, and no new assets will be added to the pool as a part of the current issuance, Moody's Ratings says.
The issue comprises £650 million ($882.80 million) in Class A mortgage-backed floating rate notes and £61.4 million ($83.40 million) in Class B notes, both of which are due in May 2072. The interest rates for the Class A notes is Sterling Overnight Index Average (SONIA) plus 0.5% and SONIA for the Class B notes, according to Fitch Ratings.
Moody's says that the Reserve Fund will be funded to 1.37% of the total notes balance at closing and that the total credit enhancement for the Class A notes will be 10%.
The seller is Newcastle Building Society, and the managers are Bank of America Merrill Lynch, BNP Paribas, Citigroup Global Markets, and Santander Investment Securities. The trustee is Citicorp Trustee Company.
Moody's said that the Class A notes benefit from the subordination provided by the Class B notes. The general reserve fund is sized at an aggregate amount of 1.5% of the Class A note balance; the released amount will flow down the waterfall as available receipts.
Fitch said that the portfolio has low seasoning (32 months) with about 75% of the pool having been originated since 2022. The weighted average (WA) original loan-to-value (LTV) ratio is 75.7% and the WA debt-to-income (DTI) 31.7%. The WA original LTV is high compared with the average of recent Fitch-rated transactions, whereas the DTI is consistent with the average.
Newcastle Building Society maintains robust underwriting criteria with a conservative stance towards borrowers, Fitch said. The pool consists entirely of borrowers with full income verification, no bankruptcy or county court judgements three years prior to origination, and no current arrears.
As part of its rating process, Fitch conducted an operational review of Newcastle Building Society, focusing on mortgage underwriting, and undertaking a file review. Fitch considers the building society's overall underwriting processes and its performance data covering 2015 to the third quarter of 2024, to be in line with prime UK peers, and therefore applied a transaction adjustment of 1.0x.
Fitch noted that the transaction allows an unlimited amount of product switches for the loans in the pool until the step-up date in May 2030, provided that the asset conditions stipulated in the transaction documents are fulfilled. Specifically, switching is allowed with a maximum fixed-rate period of up to five years beyond the step-up date, provided fixed-rate loans remain hedged.
Fitch and Moody's assigned a definitive AAA to the Class A notes but didn't rate the Class B notes.
