DBRS Ratings Limited (DBRS) confirmed its ratings of the following notes issued by European Residential Loan Securitisation 2018-1 DAC (the Issuer):
-- Class A at A (sf)
-- Class B at BBB (sf)
The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal. The rating on the Class B notes addresses ultimate payment of interest and ultimate payment of principal. The transaction benefits from an amortising Class A reserve fund and a separate Class B reserve fund, which provides liquidity support to the rated notes and principal repayment support, if available, at maturity of the rated notes.
As of the February 2019 investor report, the principal amount outstanding of the Class A, Class B, Class P and Class Z notes was equal to EUR 186.5 million, EUR 18.6 million, EUR 26.7 million and EUR 95.4 million, respectively. The balance of the Class A notes amortised by approximately 13% since issuance. The current aggregated transaction balance is EUR 327.4 million.
As reported in the most recent investor report, the actual cumulative gross collections accounted for EUR 32 million in the first nine-month period after closing. The servicer’s initial business plan assumed cumulative gross collections of EUR 39 million during the same time period.
At issuance, DBRS estimated cumulative gross collections for the same nine-month period of EUR 9.2 million in the A increasing interest rate scenario and EUR 9.1 million in the A decreasing interest rate scenario, of EUR 10.2 million in the BBB increasing interest rate scenario and of EUR 10.1 million in the BBB decreasing rate scenario. All estimates are below the actual cumulative gross collections to date.
The transaction benefits from a Class A reserve fund and a Class B reserve fund. The initial balance of the Class A reserve fund was equal to 3.0% of the Class A notes and can amortise to 3.0% of the outstanding balance of the Class A notes. As of the last investor report dated February 2019, the Class A reserve fund totalled EUR 5.6 million. The initial balance of the Class B reserve fund was equal to 9.0% of the Class B notes and does not amortise. As of the last investor report dated February 2019, the Class B reserve fund totalled EUR 1.2 million.
The mortgage loans were originated by Irish Nationwide Building Society (INBS) and are secured by residential properties in Ireland and a small proportion (i.e., 0.3% of the analysed mortgage portfolio) of residential properties outside of Ireland. INBS was effectively nationalised in August 2010 following a state bailout. In 2011, under state ownership, INBS merged with Anglo Irish Bank to form the Irish Banking Resolution Corporation (IBRC). In February 2013, IBRC was put into special liquidation by the Irish government as part of their strategy to resolve legacy bank assets. The mortgage loans were acquired by Lone Star Funds in March 2014. Servicing of the portfolio was subsequently migrated over to Pepper Finance Corporation (Ireland) DAC (PAS). PAS has been appointed as the Administrator of the assets for the transaction. Hudson Advisors Ireland DAC has been appointed as the Issuer Administration Consultant and as such will act in an oversight and monitoring capacity and provide input on asset resolution strategies.
The Issuer entered into an interest rate cap agreement with HSBC Bank Plc. The cap agreement will terminate on 24 March 2023, on which date the coupon cap on the notes becomes applicable. The Class A notes will have a coupon cap rate of 5% and that for the Class B notes will be 6%.
The ratings are based on the following analytical considerations:
-- The transaction capital structure including the form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collection and resolution activities. DBRS stressed the expected collections from the mortgage portfolio based on the business and resolution strategies. The expected collections are used as an input into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS’s “Rating European Non-Performing Loan Securitisations” and “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” methodologies.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents. The transaction cash flows were analysed using the expected collections from the mortgage loans. The transaction structure was analysed using Intex DealMaker.
-- The sovereign rating of the Republic of Ireland, which DBRS rates at A (high)/R-1(middle) with Stable trends as of the date of this report.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating European Non-Performing Loan Securitisations”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/ 333487/rating-sovereign-governments.pdf.
The sources of data and information used for the ratings include Shoreline Residential DAC and its agents.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 21 March 2018 when DBRS finalised its provisional ratings on the notes.
The lead analyst responsibilities for this transaction have been transferred to Mattia Pauciullo.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- The expected principal and interest collections in a rising interest rate scenario at A (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collections in a rising interest rate scenario at BBB (sf) rating level, a 5% and 10% reduction in the expected collections.
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would maintain the rating of Class A notes at A (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would maintain the rating of the Class A notes at A (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would maintain the rating of the Class B notes at BBB (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would maintain the rating of the Class B notes at BBB (sf).
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Mattia Pauciullo, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 8 March 2018
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.