DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AAA (sf) to the Class A notes to be issued by Bastion 2020-1 NHG B.V. (the Issuer), collateralised by a portfolio of Dutch residential mortgage loans sold by MeDirect Bank NV/SA (the Seller) and granted by HollandWoont B.V. (the Originator) in the Netherlands. The Nationale Hypotheek Garantie backs all of the loans in the portfolio.
The Issuer is expected to issue two tranches of mortgage-backed securities (Class A and Class B notes) to finance the purchase of Dutch residential mortgage loans secured over properties located in the Netherlands. Additionally, it is expected to issue Class C notes, which are noncollateralised and whose proceeds will be used to fund the Reserve Fund.
The provisional rating addresses the timely payment of interest and the Issuer’s obligation to repay principal on the Class A notes by the Legal Final Maturity Date in April 2057. DBRS Morningstar does not rate the Class B or the Class C notes. The coupon on the Class A notes will be three-month Euribor plus [0.6%] until the payment date of April 2025, and plus [1.0%] afterwards.
Credit support to the Class A notes is expected to be sized at 8.0% and is provided by subordination and a nonamortising Reserve Fund. The Reserve Fund is expected to be funded at [1.25%] of the Class A and Class B notes’ initial balance.
Further liquidity support for the Class A notes is provided through a Cash Advance Facility, along with a priority of payments allowing principal to be borrowed to support revenue items with a corresponding debit to the appropriate principal deficiency ledger. The Cash Advance Facility will amortise, with no performance conditions attached. It is expected to be sized at [1.5%] of the Class A notes’ outstanding balance with a floor of [1.0%] of the Class A notes’ initial balance. The Cash Advance Facility is a 364-day renewable facility and if it is not renewed it will be drawn by the Issuer.
As of 31 March 2020, the provisional portfolio consisted of 3,494 loans extended to 1,741 borrowers with an aggregate principal balance of EUR 349 million. The weighted-average (WA) seasoning of the portfolio was 0.2 years with a WA residual maturity of 28.9 years. The WA loan-to-value of the portfolio was 87.4%. The mortgage loans in the asset portfolio are all classified as owner-occupied and are secured by a first-ranking mortgage right. The provisional portfolio contains 18.9% interest-only loans, and 3.8% of the loans were granted to self-employed borrowers. As of the cut-off date, all mortgage loans were performing.
All loans pay a fixed rate of interest with the most common reset frequencies being 10 and 20 years. In comparison, the Class A notes pay an interest rate linked to three-month Euribor, which resets on a quarterly basis. The Issuer’s interest rate risk exposure is hedged through a total return swap agreement with Coöperatieve Rabobank U.A. Based on its rating and on the collateral posting provisions included in the documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with its “Derivative Criteria for European Structured Finance Transactions” methodology.
The Issuer account bank is BNG Bank N.V. Based on the account bank’s private ratings and the replacement provisions included in the transaction documents, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.
The Originator serviced and originated the mortgages, with Quion Services B.V. acting as subservicer.
DBRS Morningstar based its rating primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage 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 mortgage portfolio, which are used as inputs into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and “European RMBS Insight: Dutch Addendum" methodologies.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes. The transaction structure was analysed using Intex Dealmaker.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many structured finance transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus.
On 16 April 2020, DBRS Morningstar`s Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the ratings of DBRS Morningstar-rated RMBS in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodologies applicable to the rating are the “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Dutch Addendum” (13 March 2020).
DBRS Morningstar 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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include historical performance (static pool defaults data from 2010 to 2019, dynamic delinquencies data from 2012 to 2019, and dynamic prepayments data from 2010 to 2019) and loan-level data as at 31 March 2020, provided by ABN AMRO Bank N.V. and its representatives on behalf of MeDirect Bank NV/SA.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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 this rating 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.
This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
In respect of the Class A notes, the PD and LGD at the AAA (sf) stress scenario of 17.48% and 19.29%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.
DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the PD, ceteris paribus, would not lead to a rating change;
-- 25% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would not lead to a rating change.
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 GmbH are subject to EU and US regulations only.
Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 8 May 2020
DBRS Ratings GmbH, Sucursal en España
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v. 126.96.36.199,
-- European RMBS Insight: Dutch Addendum (13 March 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019), https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions.
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.