DBRS Ratings Limited (DBRS Morningstar) confirmed its A (sf) ratings on the Class A1 and Class A2 notes (together, the Class A notes) issued by Belmont Green Funding 3 Limited (the Issuer):
The ratings on the Class A1 and Class A2 notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- No draw-stop events have occurred.
The transaction is a secured funding facility provided by Macquarie Bank Limited to Belmont Green Funding 3 Limited. DBRS Morningstar initially rated the Class A notes in June 2017. The Class A2 notes hold the total commitment of the facility, up to a maximum of GBP 172.5 million, with issuance proceeds used to fund the purchase of residential mortgage loans originated by Belmont Green Finance Limited (BGFL) through its Vida Homeloans brand.
As of October 2019, there were no loans in the portfolio more than 30 days in arrears. The cumulative loss ratio was 0.0%.
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 12.8% and 30.6%, respectively, based on a “worst-case” mortgage portfolio given the eligibility criteria and portfolio concentration limits, including the maximum permitted proportion of second-ranking mortgages at 12.5%.
The facility is structured with a borrowing base mechanism that provides a dynamic advance rate that fluctuates depending on the concentration of second-lien mortgages in the portfolio. The maximum advance rate for first-lien mortgages is 90.0% and the maximum advance rate for second-lien mortgages is 75.0%. The maximum advance rate permitted is 90.0%, corresponding to an entirely first-lien mortgage portfolio, and equivalent to a minimum Class A credit enhancement of 10.0%. Credit enhancement is provided by the subordinated loan.
The transaction benefits from a liquidity reserve fund, available to cover senior fees and Class A interest and principal via the Class A principal deficiency ledger.
Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's “Legal Criteria for European Structured Finance Transactions” methodology.
NatWest Markets Plc acts as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Critical Obligations Rating of NatWest Markets Plc at ‘A’ is in line with the First Rating Threshold as described in DBRS Morningstar's “Derivative Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
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 these ratings include investor reports provided by Elavon and loan-level data provided by BGFL.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these 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.
The last rating action on this transaction took place on 16 January 2019, when DBRS Morningstar confirmed the ratings of the Class A notes.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- DBRS Morningstar 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 are 12.8% and 30.6%, respectively, in the event that the maximum permitted proportion of second-lien mortgages are purchased.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to fall to BBB (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to fall to BBB (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to BB (high) (sf).
Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Andrew Lynch, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 14 June 2017
DBRS Ratings Limited
20 Fenchurch Street
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.
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- European RMBS Insight Methodology
-- European RMBS Insight: UK Addendum
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- 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 firstname.lastname@example.org.