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Rating Action: Moody's assigns provisional rating to Friary No.7 plc RMBSGlobal Credit Research - 07 Sep 2022GBP[ ] million RMBS Notes rated, relating to a portfolio of UK Prime residential mortgage loansLondon, September 07, 2022 -- Moody's Investors Service ("Moody's") has assigned provisional rating to Notes to be issued by Friary No.7 plc:....GBP []M Class A mortgage backed floating rate Notes due October 2070, Assigned (P)Aaa (sf)Moody's has not assigned a rating to the subordinated GBP [ ]M Class B mortgage backed floating rate Notes due October 2070.The Notes are backed by a pool of UK Prime residential mortgage loans originated by Principality Building Society ("Principality", Baa2/P-2, A2(cr)/P-1(cr)). This represents the seventh issuance out of the Friary label. The portfolio of assets amount to approximately GBP 611 million as of 30 June 2022 pool cutoff date.RATINGS RATIONALEThe ratings are primarily 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 of prime borrowers and an amortising reserve fund sized at 2.0% of the initial portfolio balance. The reserve fund will be fully funded at closing and will amortise, if certain conditions are met, down to 2.5% of the outstanding principal amount of Class A notes, subject to a minimum of 1.75% of the initial portfolio balance. However, Moody's notes that the transaction features some credit weaknesses such as the risk of spread compression due to product switches and operational risk as Principality acts as originator, servicer and cash manager. This is mitigated by the high ratings of Principality, the appointment of a back-up servicer facilitator, the benefit of approximately three quarters of liquidity provided by the reserve fund and estimation language in case no servicer report is available.Moody's determined the portfolio lifetime expected loss of 0.6% and MILAN credit enhancement ("MILAN CE") of 6.0% 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 0.6%: This is lower than the UK Prime RMBS sector and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account: (1) the portfolio characteristics, including a weighted-average current LTV of 65.8%, weighted-average seasoning of 2.7 years and 15.2% self-employed individuals; (2) the good performance of the seller's precedent transactions as well as the historical performance of the seller's loan book; (3) benchmarking with comparable transactions in the UK RMBS market; and (4) the current economic conditions in the UK.MILAN CE of 6.0%: This is lower than than the UK Prime RMBS sector average and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers: (1) the portfolio characteristics including the weighted-average current LTV of 65.8% for the pool, the WA seasoning of 2.7 years and 15.2% self-employed individuals; (2) the potential changes to the initial pool due to product switches and further advances; (3) benchmarking with other UK Prime RMBS transactions as well as with the previous transactions of Principality.The principal methodology used in this rating was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390481. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.The analysis undertaken by Moody's at the initial assignment of a rating for an RMBS security 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 rating:Factors that would lead to a downgrade of the rating include: (i) increased counterparty risk, including the creditworthiness of Principality, 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 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 on https://ratings.moodys.com/rating-definitions.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 issuer/deal page for the respective issuer on https://ratings.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 rating hasbeen disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.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://ratings.moodys.com/documents/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 https://ratings.moodys.com.Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Elena Ioannou 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. 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