Lloyds TSB's deal has £3 billion ($4.9 billion) of Class A notes backed by senior secured loans to registered U.K. social landlords (RSL). The deal, dubbed Chepstow Blue Plc, has been assigned a ‘AAA' by Fitch Ratings.

The loans in the portfolio are senior secured debt obligations of U.K. RSLs, which are housing associations registered with the government regulatory body, the Tenant Services Authority (TSA). RSLs must abide by TSA regulations and receive public support in the form of housing benefit and grants.

The net proceeds from the note issuance will be used to purchase interests in the trust for the issuer and originator beneficiary in accordance with their respective shares. At closing date, the current portfolio size is approximately £3.7 billion. A further £1.2 billion may be drawn under the terms of the underlying RSL loans and a corresponding further £1.2 billion of class A2 notes may be issued.

The ratings are based on the credit enhancement to the class A notes, the deposit account, structural protection, covenants and excess spread. The ratings also account for the quality of the portfolio of assets selected and managed by Lloyds TSB, subject to guidelines outlined in the transaction documents. The ratings also reflect the significant support by the U.K. government for RSLs and, therefore, the ratings are also credit-linked to the sovereign ratings of the U.K.

“Lloyds TSB acts as counterparty to the transaction in several forms including: swap counterparty, loan trustee, collateral administrator, account bank and servicer,” Fitch analysts said. “While the transaction documents include mitigating factors in compliance with current Fitch criteria for counterparty risk, the class A notes could be vulnerable if Lloyds TSB were to suddenly default from its current Long-term and Support ratings. However, in light of the Lloyds TSB's Support Rating of '1', this risk is deemed to be sufficiently remote to support a 'AAA' rating.”


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