DBRS Ratings Limited (DBRS Morningstar) assigned a rating of AAA (sf) to the Class A notes issued by Hypenn RMBS VII B.V. (the Issuer). The transaction is collateralised by a portfolio of Dutch residential mortgage loans sold by Nationale-Nederlanden Bank N.V. (the Seller) and granted by Amstelhuys B.V. (the Originator) in the Netherlands. The Nationale Hypotheek Garantie (NHG) backs 50.7% of the loans in the portfolio.
The Issuer issued two tranches of mortgage-backed securities (i.e., the Class A and Class B notes) to finance the purchase of Dutch residential mortgage loans secured over properties located in the Netherlands. Additionally, it issued noncollateralised Class C notes, the proceeds from which funded the reserve fund.
The 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 June 2052. DBRS Morningstar does not rate the Class B nor the Class C notes. The coupon on the Class A notes will be 0.75% until the payment date of September 2026, and 1.0% afterwards.
Credit support to the Class A notes is sized at 5.1% and provided by subordination and a nonamortising reserve fund. The reserve fund was funded at 0.1% of the Class A and Class B notes’ initial balance.
In addition to the cash reserve, further liquidity support for the Class A notes is provided through a cash advance facility and a priority of payments that allows the principal to be borrowed to support revenue items with a corresponding debit to the appropriate principal deficiency ledger. The cash advance facility is sized at EUR 5 million and is a 364-day renewable facility; if it is not renewed, it will be drawn by the Issuer.
The cash reserve and cash advance facility in the transaction would cover approximately five months of senior expenses and Class A interest servicing if all the mortgage borrowers were to opt for a payment holiday scheme. Although five months` liquidity is lower than average, DBRS Morningstar draws comfort from the requirement that all of the mortgage loans to be sold to the Issuer at closing will be current and will not be under payment holidays.
As of 31 May 2020, the portfolio consisted of 25,148 loans extended to 12,036 borrowers with an aggregate principal balance of EUR 2,065 million. The weighted-average (WA) seasoning of the portfolio was 8.6 years with a WA residual maturity of 20.7 years. The WA loan-to-value of the portfolio was 87.4%. The mortgage loans in the portfolio are mostly classified as owner-occupied and are secured by first-lien or first-lien and further-ranking mortgages. The portfolio contained 65.8% of loans with a balloon payment at maturity, and 8.2% of the loans were granted to self-employed borrowers. As of the cut-off date, all mortgage loans were performing.
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 rating assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar based its rating primarily on the following analytical considerations:
-- The transaction’s 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".
-- 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 RMBS transactions, some meaningfully. The ratings are based on additional analysis and additional adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
On 1 June 2020, DBRS Morningstar’s Sovereign group published an updated 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/361867/global-macroeconomic-scenarios-june-update 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 its ratings of RMBS transactions 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.
DBRS Morningstar considered that the presence of 50.7% loans backed by the NHG guarantee was a social factor (Social Impact of Product & Services) as outlined within the DBRS framework – “DBRS Morningstar’s Approach to Environmental, Social and Governance Risk Factors in Credit Ratings”. DBRS Morningstar assumed reduced loss severity for the loans which are backed by NHG guarantee as outlined in its methodology (https://www.dbrsmorningstar.com/research/357926/european-rmbs-insight-dutch-addendum). This is credit positive and impacts the ratings.
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 methodologies 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 2003 up to 2019, cumulative historical losses data from 2003 up to 2019 dynamic arrears data from 2008 up to 2019, and annualised prepayments data from 2009 to 2020) and loan-level data as at 31 May 2020, provided by Nationale-Nederlanden Bank N.V.
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 17.08% and 21.98%, 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 lead to a rating change;
-- 25% increase of the LGD, ceteris paribus, would lead to a rating change;
-- 50% increase of the LGD, ceteris paribus, would lead to a rating change;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change;
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a rating change;
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a rating change; and
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would 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 Limited are subject to EU and U.S. regulations only.
Lead Analyst: Alvaro Astarloa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 11 June 2020
DBRS Ratings Limited
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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. 22.214.171.124,
-- 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 firstname.lastname@example.org.