The recent upgrade of the first 10 series of the Granite master trust program by all three rating agencies may on the surface signal a shift in their approach on upgrades for legally tappable deals.

Analysts, however, say the rules remain the same.

Before the Granite upgrade, analysts at Fitch Ratings said there were several Care Home deals put through in September 2005.

"Fitch has never upgraded deals which were capable of being tapped," said Philip Walsh, senior director in Fitch's European structured finance department. "The reason these deals were upgraded was because they were not capable of being tapped without note holder approval, [and] our view was that the upgrade would have no effects on the tappability of these deals."

Unlike similar socialist master trust structures, the recently put through Granite deals lend de-leveraging benefits to seasoned notes given the reserve funds are exclusive to each series.

"Granite had an interesting format that they used to fund the RMBS program, which essentially uses two different funding trusts," Walsh said. "The upgrades have come out of the Funding 1 trust, which is part of the formal master trust structure, but is considered a separate issue."

Each of these issues has had its own reserve fund that basically functions as a capitalist reserve fund. In the event of a shortfall, none of these deals can take from the reserve fund of other deals.

"The key is [that] when the structure de-levers, the credit enhancement will always be there and Northern Rock has no intent to use that funding issue - although legally tappable, it is not really tappable in the same sense," Walsh said. "The credit enhancement is static and does not evolve if new issuance were to come out of those same funding trusts."

For this reason, some question whether future securitizations of retained first-loss pieces, like Northern Rock's Whinstone Capital Management deal, would work for competing banks.

"Other issuers have a communal first-loss piece. All of their deals are one first-loss piece, so in terms of selling it, it technically wouldn't be as easy," said an industry source.

Walsh added that Fitch maintains the stance that if a deal is capable of being tapped, and if there is a ratings test that requires ratings to remain the same, the agency will not upgrade those deals.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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