London, 12 December 2012 -- Moody's Investors Service has assigned definitive credit ratings to the following classes of notes to be issued by Mercia No. 1 plc:

GBP 718.2 M Class A1 mortgage backed notes due 2050, Definitive Rating Assigned Aaa (sf)

GBP 718.2 M Class A2 mortgage backed notes due 2050, Definitive Rating Assigned Aaa (sf)

Moody's has not rated the GBP 191.2 M Class Z VFN mortgage backed notes due 2050.

RATINGS RATIONALE

The notes are backed by a pool of UK Buy-to-let ("BTL") residential mortgage loans originated by Godiva Mortgages Limited ("Godiva", Not Rated), a wholly owned subsidiary of Coventry Building Society ("CBS", A3/P-2). This represents the 2nd RMBS and the 1st BTL RMBS of Godiva originated loans. At closing the total credit enhancement for the Class A notes is 12.0% including a non-amortising reserve fund of 2.5%, equivalent to 2.76% of the rated note balance, which is fully funded at close.

The ratings are primarily based on the credit quality of the portfolio, its diversity, the structural features of the transaction and its legal integrity. From the assessment of the credit quality of the underlying mortgage loan pool, Moody's determined the portfolio expected loss of 1.6% and MILAN Credit Enhancement (CE) of 12%.

Portfolio expected loss of 1.6%: This is lower than the UK BTL sector average of 1.7% and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the collateral performance of Godiva originated BTL loans to date, as provided by the originator; (ii) the BTL nature of the mortgages, (iii) benchmark with similar UK BTL RMBS, (iv) the presence of a 4-year revolving period which could potentially cause a drift in asset quality and (v) the current macroeconomic environment in the UK along with the potential impact of future interest rate rises on the performance of the mortgage loans, especially in light of the high proportion of interest-only loans (80.3% at closing and up to 85% during and after the replenishment period).

MILAN CE of 12%: This is lower than the UK BTL sector average of 16.9% and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers (i) the historic collateral performance as described above; (ii) the BTL nature of the mortgages, (iii) the low weighted average current loan-to-value of 50.4% and the covenanted maximum weighted average original loan-to-value of 60% during the replenishment period; (iv) the high proportion of interest-only loans of 80.3%; and (v) as described above the potential drift in asset quality since the closing pool can be replenished with new mortgage loans within the first four years of the transaction.

Godiva will act as swap counterparty. However, since Godiva is not rated by Moody's, CBS (A3/P-2) will act as guarantor in favour of the issuer and will, according to a deed of guarantee, unconditionally and irrevocably guarantee the payment of all amounts due by Godiva under the swap agreement.CBS is below the first swap trigger (A2/P-1) in Moody's swap framework and will therefore be expected to post collateral from close. Should CBS be downgraded from its current rating then the swap documents require it to seek a guarantor or transfer to a new swap provider. With all loans in the pool reverting to one of Godiva's discretionary SVR rates, the transaction receives significant benefit from the guaranteed post-swap margin of 2.5% over note LIBOR for the performing loans. Moody's has therefore performed additional scenario analyses to help assess the linkage between the ratings of the notes and that of CBS as swap guarantor. In particular, Moody's has assessed the impact of the current rating of CBS on that of the rated notes based on the Request for Comment released in July 2012 for its "Approach to Assessing Swap Linkage to Swap Counterparties in Structured Finance Cashflow Transaction" and has determined that the linkage to the swap guarantor has no rating impact of the Class A1 and Class A2 notes.

Moody's noted that on 2 July 2012, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating implementation guidance for its "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions". If the revised rating implementation guidance are implemented as proposed, the rating on the Notes should not be negatively affected. Please refer to Moody's Request for Comment, entitled "Approach to Assessing Linkage to Swap Counterparties in Structured Finance Cashflow Transactions: Request for Comment" for further details regarding the implications of the proposed methodology changes on Moody's ratings.

There is a back up servicer facilitator in place at closing, triggers to appoint back up servicer and cash manager should the rating of Coventry Building Society fall below Baa3. The servicer, with the assistance of the back-up servicer facilitator, are required to use best efforts to appoint a back up servicer on loss of Baa3. To help ensure continuity of payments both the terms and conditions of the notes and the swap documents contain estimation language whereby the cashflows will be estimated from the three most recent servicer reports should such a document not be available. In addition there is a principal to pay interest mechanism for the Class A notes with the reserve fund available as a further source of liquidity. Given its senior position in the revenue waterfall, payable just before Class A PDL, the reserve fund should be available as a source of liquidity in all loss scenarios.

The rating on the notes addresses the expected loss posed to investors by the legal final maturity. In Moody's opinion, the structure allows for timely payment of interest and principal with respect of the rated notes by the legal final maturity. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

The V Score for this transaction is Medium, which is lower than the UK Non-confirming RMBS Sector Score of Medium/High. The lower score is driven by the absence of any particular complexity in the transaction analysis and the strong alignment of interest through CBS and Godiva retaining the Class A notes and the Class Z VFN, respectively. The V Score was however negatively impacted by the originator's limited securitization experience and the lack of performance data prior to 2007 and of roll rate and loan modification data. V Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. High variability in key assumptions could expose a rating to more likelihood of rating changes. The V-Score has been assigned accordingly to the report "V-Scores and Parameter Sensitivities in the Major EMEA RMBS Sectors" published in April 2009.

Moody's Parameter Sensitivities: If the portfolio expected loss was increased from 1.6% of current balance to 3.2% of current balance, and the MILAN Credit Enhancement was increased from 12.0% to 14.4%, the model output indicates that the rated notes would still achieve Aaa assuming that all other factors remained equal. Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

The principal methodology used in this rating was Moody's Approach to Rating RMBS in Europe, Middle East and Africa published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Other Factors used in this rating are described in Global Structured Finance Operational Risk Guidelines: Moody's Approach to Analyzing Performance Disruption Risk published in June 2011.

In rating this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the lognormal distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche.

As such, Moody's analysis encompasses the assessment of stressed scenarios.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF308935.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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Emily Rombeau Associate Analyst Structured Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Michelangelo Margaria VP - Senior Credit Officer Structured Finance Group Telephone:+39-02-9148-1100 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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