Morningstar DBRS Upgrades Credit Rating on Towd Point Mortgage Funding 2019-Granite5 Plc

DBRS Ratings Limited (Morningstar DBRS) upgraded its credit rating on the Class F notes issued by Towd Point Mortgage Funding 2019-Granite5 Plc (the Issuer) to AAA (sf) from AA (high) (sf).

The credit rating on the Class F notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the January 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class F notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of UK unsecured consumer loans offered to borrowers at the same time they took out a mortgage loan from the originator, Landmark Mortgages Limited (Landmark; formerly Northern Rock Asset Management plc). Cerberus European Residential Holdings B.V. acquired the loans, which were previously securitised in Towd Point Mortgage Funding 2016-Granite3 plc, from Landmark. Landmark acts as master servicer for the portfolio, but delegated its role servicing the loans to Computershare Mortgage Services Limited.

PORTFOLIO PERFORMANCE
As of 31 December 2023, loans two to three months in arrears represented 1.0% of the outstanding portfolio balance, up from 0.9% a year prior. Loans more than three months in arrears represented 29.0%, up from 22.8% a year prior. Cumulative losses since closing were 11.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted an analysis of the current pool of receivables and updated its base case PD and LGD assumptions at the B (sf) credit rating level to 36.7% and 100.0%, respectively.

CREDIT ENHANCEMENT
Credit enhancement is provided by the subordination of the junior notes. Morningstar DBRS excluded the balance of loans at least four months in arrears when calculating the credit enhancement. As of the January 2024 payment date, credit enhancement to the Class F notes was 92.1%, up from 24.8% at Morningstar DBRS’ initial credit rating.

A liquidity facility provided by Wells Fargo Bank, NA (London Branch) (privately rated by Morningstar DBRS) was established at closing and was sized at 1.7% of the principal amount outstanding of the Class A notes. The liquidity facility was available to cover senior fees and interest payments on the Class A notes until the Class A notes were fully repaid on the July 2022 payment date (liquidity facility cancellation date).

An excess cash flow reserve fund (ECRF) will be established from the first optional redemption date (April 2024, if the redemption is not exercised) until the rated notes have been repaid in full, and will be available to pay interest due on the outstanding rated notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class F notes are no longer outstanding.

Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on Morningstar DBRS’ private rating on Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class F notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS’ credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS’ credit rating on the notes also addresses the credit risk associated with the increased rate of interest applicable to the notes if the notes are not redeemed on the optional redemption date (as defined in and) in accordance with the applicable transaction documents.

Morningstar DBRS’ credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the credit rating is the “Master European Structured Finance Surveillance Methodology” (11 December 2023), https://dbrs.morningstar.com/research/425148.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other Morningstar DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include investor reports and loan-level data provided by Elavon.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit rating, Morningstar DBRS was supplied with third-party assessments. However, this did not impact the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purpose of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 2 February 2023, when Morningstar DBRS upgraded its credit ratings on the Class C, Class D, Class E, and Class F notes to AAA (sf), AAA (sf), AA (high) (sf), and AA (high) (sf) from A (high) (sf), A (sf), A (low) (sf), and BBB (high) (sf), respectively. Morningstar DBRS subsequently discontinued its credit ratings on the Class C, Class D, and Class E notes on 10 May 2023, 8 August 2023, and 24 January 2024, respectively, following their repayment in full.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available at dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- Morningstar DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer at the B (sf) credit rating level are 36.7% and 100.0%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD increases by a certain percentage over the base case assumption. Increases in the LGD were not assessed given that the base case LGD is 100%.

Class F Risk Sensitivity:
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Clare Wootton, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 13 November 2019

DBRS Ratings Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730
-- Master European Structured Finance Surveillance Methodology (11 December 2023), https://dbrs.morningstar.com/research/425148
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model v6.0.2.0, https://dbrs.morningstar.com/research/411634
-- European RMBS Insight: UK Addendum (11 August 2023), https://dbrs.morningstar.com/research/419141
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].