Moody's assigns provisional ratings to floating rate secured Sukuk notes to be issued by Tamweel Residential ABS CI (1) Ltd.

They are the following:

- (P) Aa2 to the USD [185,900,000] Class A Floating Rate Secured Notes due 2037;
- (P) Baa1 to the USD [16,100,000] Class B Floating Rate Secured Notes due 2037;
- (P) Ba3 to the USD [10,300,000] Class C Floating Rate Secured Notes due 2037;
- NR to the USD [7,700,000] Class D Floating Rate Secured Notes due 2037.

This transaction is the first international RMBS from the six countries of the Gulf Cooperative Council and achieves the highest Moody's rating currently possible in the UAE on the most senior Notes. It is also the first such issuance to be structured according to Islamic ethical investment principles.

SPV structure

Tamweel Residential ABS CI (1) Ltd, an SPV incorporated under the laws of the Cayman Islands, will issue four classes of US dollar-denominated notes to fund the purchase of properties and related Ijara lease receivables arising from Dubai home financings originated by Tamweel PJSC ('Tamweel').

The transaction involves a dual SPV structure whereby the Tamweel will pass the legal title, assign the lease rental and all the associated rights and receivables of the properties to Tamweel Properties 1 Limited (TPL), a special purpose company incorporated in the Dubai International Financial Centre ('DIFC') based in the UAE.

TPL will create security interests over all of its assets, including any sale proceeds from the Properties, expropriation proceeds and any other rights in or arising under the Properties (other than the ownership title) in favour of the Security Trustee. DIFCO will also assign all the rights and lease rentals receivables to the offshore Cayman SPV Tamweel Residential ABS CI (1) Ltd.

It should be highlighted that due to the lease based nature of Islamic home finance and, unlike typical RMBS transactions, there will be a transfer of title of the pool properties to the TPL. This transfer is still governed by Dubai law, while the remaining transaction documents are governed by English law.

Sukuk structural features

It should be noted that the underlying assets (Ijara lease contracts) and liabilities of the transaction are structured to be compliant with Islamic ethical principles or 'Shari'ah'. As such, investors will see transaction features that are not typical in conventional residential mortgage securitisations. The application of Arabic financial terminology may be commonplace throughout asset and structure documentation. Bonds that comply with such principles are commonly referred to as Sukuk, and it should be highlighted that this is the first, global, Islamic, residential securitisation rated investment grade.

In its extensive analysis of such structures, Moody's has found that conventional methods of RMBS analysis are still wholly applicable and that the credit ratings assigned here are comparable to all Global Scale Ratings issued by Moody's. It is important to note Moody's does not seek to review or opine on the degree of compliance with Shariah and such aspect is only considered to the degree it affects the credit risk profile of the transaction.

Securitised portfolio and primary servicer: Tamweel PJSC

The portfolio comprises of 'Ijara' contracts (lease-to-buy), denominated in AED. Under these contracts, a constructed property is acquired by Tamweel and subsequently given as a long-term lease ('Lease') to the customer ('Lessee') for an agreed rent and specified period. The lease rentals and other payments connected with the properties (the insurance proceeds or sales to third parties if a Lessee is evicted) would be the source of cash flows to support the payments due under the Notes.

The primary servicing will be done by Tamweel. A secondary hot back-up servicer will be Ensec Services LLC. Arrangements for a tertiary 'cold' back-up of Dubai Islamic Bank ('DIB') rated A1/P-1 by Moody's will also be effected at closing.

AED foreign exchange risk

As noted above the underlying Ijara contracts are denominated in AED which has been pegged to the US Dollar at AED 3.6821 to USD 1. While the peg has been stable for over twenty years, a hedge agreement has been effected to mitigate the remote risk of possible devaluation. All classes of notes are fully hedged via an Exchange Rate Agreement which is effectively a series of European 'put' options (one per distribution date) which allow the Issuer to deliver the AED amounts received in exchange for USD at the foreign exchange rate at closing. Morgan Stanley & Co. International plc (Aa3 / P-1) is the hedge provider. Rating triggers are in place to address the counterparty risk present.

Provisional ratings assigned

The ratings of the notes are based on (i) favourable pool characteristics such as the moderate weighted average LTV of [45.90]%, (ii) the legal structure including the property ownership by the on-shore SPV, (iii) the foreign exchange risk mitigation provided by the Exchange Rate Agreement, (iv) the presence of a 'hot' secondary and highly rated tertiary servicers, (v) the credit enhancement in the form of the subordination below each note and the cash reserve fund fully funded at 0.50% at closing. Assigning seniority to the classes from Class A (most senior) to Class D (least senior), all senior notes will benefit from the subordination of Classes below. (vi) the liquidity support in the transaction comprising of a USD and AED liquidity facilities.

The provisional ratings address the expected loss posed to investors by the legal final maturity of the Notes. In Moody's opinion the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. Moody's issues provisional ratings in advance of the final sale of securities, but these ratings represent only Moody's preliminary credit opinions. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a provisional rating.