DBRS Ratings Limited (DBRS Morningstar) finalised the following provisional ratings on the notes (the Notes or the Rates Notes) issued by Towd Point Mortgage Funding 2019-Granite5 Plc (Granite5 or the Issuer):
-- Class A Notes rated AAA (sf)
-- Class B Notes rated AA (sf)
-- Class C Notes rated A (low) (sf)
-- Class D Notes rated BBB (sf)
-- Class E Notes rated BB (high) (sf)
-- Class F Notes rated B (sf)
DBRS Morningstar does not rate the Class Z1, Z2 and XA Notes.
The rating assigned to the Class A Notes addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date in July 2044. The rating on the Class B Notes addresses the timely payment of interest when they are the senior-most notes (after the redemption of the Class A Notes) and the ultimate payment of principal. The ratings on the Class C to Class F Notes address the ultimate payment of principal and interest. An increased margin on all the Rated Notes is payable from the step-up date in April 2024.
Granite5 is a bankruptcy-remote special-purpose vehicle incorporated in England and Wales. The proceeds of the Notes funded the purchase of unsecured consumer loans located in the United Kingdom of Great Britain and Northern Ireland (United Kingdom; rated AAA with a Stable trend by DBRS Morningstar). Cerberus European Residential Holdings B.V. (CERH or the Seller) acquired the portfolio from Landmark Mortgages Limited (Landmark; formerly NRAM Plc and Northern Rock Plc).
The legal title to the unsecured loans is held by Landmark. Beneficial interest in the assets will be transferred to the Issuer by CERH. CERH completed, through a wholly owned subsidiary, the acquisition of Landmark on 5 May 2016.
Credit enhancement is provided in the form of subordination of the junior notes. The Class Z Notes are split into two notes: the Class Z1 Notes and the Class Z2 Notes. The outstanding balance of the Class Z2 Notes is equal to the balance of the unsecured loans, which are over 12 months in arrears. Consequently, the structure has a day-one defaulted balance, which is allocated to the Class Z2 Notes’ principal deficiency ledger (PDL). The PDL allocation to the Class Z2 Notes is not cleared in the revenue waterfall. Only newly defaulted loans will be allocated to the PDLs of the respective Notes, beginning with the Class Z1 Notes’ PDL.
The credit enhancement available to the Class A Notes will be 49.5%, provided by subordination of the Class B, Class C, Class D, Class E, Class F and Class Z1 Notes. The credit enhancement available to the Class B Notes will be 46.0%, provided by subordination of the Class C, Class D, Class E, Class F and Class Z1 Notes. The credit enhancement available to the Class C Notes will be 38.6%, provided by subordination of the Class D, Class E, Class F and Class Z1 Notes. The credit enhancement available to the Class D Notes will be 34.0%, provided by subordination of the Class E, Class F and Class Z1 Notes. The credit enhancement available to the Class E Notes will be 28.8%, provided by subordination of the Class F and Class Z1 Notes. The credit enhancement available to the Class F Notes will be 24.8%, provided by subordination of the Class Z1 Notes. Credit enhancement percentages are expressed as a percentage of the Class A to Class Z1 Notes’ balance.
The transaction benefits from a Liquidity Facility, an amortising Class A Liquidity Reserve Fund and an Excess Cash Flow Reserve Fund (ECRF). The Liquidity Facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar) and sized at 1.7% of the principal amount outstanding of Class A Notes. The Liquidity Facility will cover senior fees and interest payments on Class A Notes up to the Liquidity Facility Cancellation Date. The Class A Liquidity Reserve Fund will cover senior fees and interest payments on Class A Notes from the Liquidity Facility Replacement Date in October 2025 and will be funded by available principal and revenue receipts. It will be amortising and sized at 1.7% of the principal amount outstanding of the Class A Notes. The ECRF will be established from the First Optional Redemption Date (April 2024, if redemption is not exercised) until all the Subordinated Rated Notes have been repaid in full and will be available to pay interest due on the Subordinated Rated Notes, after applying any principal addition amounts. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until no more Subordinated Rated Notes are outstanding.
The Notes pay a coupon linked to the daily compounded Sterling Overnight Index Average (SONIA). The majority of the loans in the portfolio (83.3%) are floating-rate loans linked to a standard variable rate, 0.02% of the loans are linked to the Bank of England base rate and the remaining are fixed-rate 0.0% coupon loans. There is no swap in the structure, and thus the basis mismatch remains unhedged. In its cash flow analysis, DBRS Morningstar considered the mismatch resulting from differing indices along with the daily note interest accrual versus loans resetting with a time lag.
As of the 31 October 2019 cut-off date, the portfolio consisted of 16,812 loans with a total portfolio balance of approximately GBP 149.4 million. The portfolio comprises linked unsecured loans (90.4%) and de-linked unsecured loans (9.6%). The Together Loan segment comprised a secured first-lien mortgage and an unsecured loan. A maximum term of 35 years was available at origination for both loan parts. While the terms of each loan part were not required to be the same, in practice they tended to be equal. The de-linked unsecured loans consist of an unsecured Together Loan part where the secured mortgage element has redeemed.
The portfolio is significantly seasoned with a weighted-average (WA) seasoning of 13.5 years, with most of the portfolio (92.1%) originated between 2005 and 2007. DBRS Morningstar calculated the WA indexed loan-to-value based on the current loan balance (unsecured plus secured) and the DBRS Morningstar indexed original property valuation at 81.1%. The portfolio contains 15.8% of loans that are equal to or greater than three months in arrears, with 12.9% in greater than 12 months in arrears. A further 1.5% are either past their maturity date or defaulted. The WA coupon generated by the mortgage loans is 4.8%.
Landmark is the Master Servicer, with servicing activities delegated to Computershare Mortgage Services Limited. The Master Servicer will remain responsible to the Issuer and the Trustee for the performance of the Delegated Servicer. Capital Home Loans Ltd. was appointed the backup delegated servicer, and the backup delegated servicer facilitator is CSC Capital Markets UK Limited.
Borrower collections are held with National Westminster Bank plc, and estimated collections are deposited on the next business day into the Issuer transaction account held with Elavon Financial Services DAC, UK branch. DBRS Morningstar’s private rating of the Issuer Account Bank is consistent with the threshold for account banks as outlined in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology given the ratings assigned to the Notes.
To assess the payment of interest and principal on the Rated Notes, DBRS Morningstar applied seven-year default curves (front ended and back ended); its prepayment curves (low, medium and high constant prepayment rate (CPR) assumptions); and interest rate stresses per its “Interest Rate Stresses for European Structured Finance Transactions” methodology. Furthermore, a 0.0% prepayment curve was also tested. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the performance of the Rated Notes.
The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction’s capital structure, including the form and sufficiency of available credit enhancement.
-- The characteristics of the portfolio and the ability of the servicer to perform collection and resolution activities.
-- DBRS Morningstar calculated probability of default (PD), loss given default (LGD) and expected loss outputs on the portfolio for its analysis along with DBRS Morningstar’s cash flow tool. The portfolio was analysed in accordance with DBRS Morningstar’s “Rating European Consumer and Commercial Asset-Backed Securitisations”, “European RMBS Insight Methodology” and “European RMBS Insight: U.K. Addendum”.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Notes according to the terms of the transaction documents. The transaction structure was analysed using Intex DealMaker.
-- The sovereign ratings of the United Kingdom of AAA and R-1 (high) with Stable trends as of the date of this report.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the legal opinions addressing the assignment of the assets to the Issuer.
All figures are in British pounds sterling unless otherwise noted.
The principal methodologies applicable to the ratings are “Rating European Consumer and Commercial Asset-Backed Securitisations”, “European RMBS Insight Methodology” and “European RMBS Insight: U.K. Addendum”.
DBRS Morningstar has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.
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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for the ratings include Landmark and agents on behalf of the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing the ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
These ratings concern a to-be-issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.
This is the first rating action since the Initial Rating Date.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case). DBRS Morningstar did not apply increased stress scenarios for LGD, as the LGD for this portfolio is 100%:
The base-case PD and LGD of the current pool of receivables, respectively, for each tranche are as follows:
-- Class A at AAA (sf): 50.5% and 100%
-- Class B at AA (sf): 45.8% and 100%
-- Class C at A (low) (sf): 38.4% and 100%
-- Class D at BBB (sf): 34.7% and 100%
-- Class E at BB (high) (sf): 29.5% and 100%
-- Class F at B (sf): 24.3% and 100%
For example, if the PD increases by 25%, the rating of the Class A Notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to A (sf), ceteris paribus.
Class A Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
Class B Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
Class C Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
Class D Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of BB (low) (sf)
-- 50% increase in PD, expected rating of B (low) (sf)
Class E Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of B (low) (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
Class F Notes Risk Sensitivity:
-- 25% increase in PD, expected rating below B (low) (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
For further information on DBRS Morningstar 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: Rehanna Sameja, Senior Vice President
Rating Committee Chair: Ketan Thaker, Senior Vice President
Initial Rating Date: 13 November 2019
DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum
-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
A description of how DBRS Morningstar 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.
This press release was amended on 4 December 2019 to correct a typo in the DBRS Morningstar legal entity.