Paragon Mortgages (No. 12) upgrades class B and C notes after Barclays rating move

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Paragon upgrades class B, C notes

Highlights

Fitch upgrades Paragon Mortgages (No. 12) class B and C notes to 'AA-sf' from 'A+sf' after Barclays Bank plc's rating action.
Sequential amortisation for class B and C notes starts August 2025 if their combined balance falls below the 4.76% threshold of the initial note balance.
Late-stage arrears in the mortgage pool fall to 1.91% in January 2026 from 2.45% in April 2025, supporting improved asset performance.

Rating changes and transaction mechanics

As reported by Fitch Ratings, the agency upgrades PM12's class B and class C notes to 'AA-sf' from 'A+sf' and affirms the class A notes at 'AAAsf'. The class C1b currency swap obligations are also upgraded in line with the related tranche under Fitch's structured finance criteria.

The agency says the upgrade follows a recent rating action on Barclays Bank plc, the transaction counterparty. Because the first loss fund for the class B and C notes is held with the UK bank, the ratings on those tranches are directly linked to Barclays and had been capped by its previous rating level.

Fitch also notes that the transaction switches to sequential amortisation from pro rata beginning with the August 2025 interest payment date after the combined balance of the class B and C notes falls below the 4.76% minimum threshold of the initial note balance. Pro rata amortisation resumes once the class A notes are fully redeemed, subject to asset performance triggers tied to principal deficiency balances and loans that are at least three months in arrears.

Asset performance and rating risks

Performance in the underlying mortgage pool is stabilising, according to Fitch. Late-stage arrears decline to 1.91% in January 2026 from 2.45% in April 2025, and the agency says Paragon's receiver of rent policy continues to help contain arrears by diverting rental income toward missed payments.

The reserve fund, which is replenished after the three-months-plus arrears trigger breaches the 3% threshold in October 2023, gradually rebuilds and currently stands at 81.7% of its target level. Fitch says improving asset performance means it does not expect the transaction's performance triggers to be breached, although class B and C notes could still face tail risk if the first loss fund becomes their only source of credit enhancement.

Fitch also applies borrower-level recovery rate caps to the seasoned and underperforming collateral, citing the legacy profile of loans originated between 2005 and 2007 and observed loss severity of about 20%. The agency says a material rise in foreclosure frequency, weaker recoveries, or a negative rating action on Barclays Bank plc could still lead to negative rating pressure on the affected notes.

Our earlier coverage of Fitch’s final 'AAAsf' rating on PMF 2026-1 PLC’s class A notes outlined how the UK buy-to-let RMBS is backed by prime mortgages originated and serviced by Charter Court Financial Services Limited, with portfolio metrics such as seasoning and loan-to-value supporting the top rating. We also noted the transaction’s interest-rate hedge and Fitch’s assumptions around product switches, prepayments, and downside risks from weaker performance that could pressure credit enhancement and recoveries.

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