DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) rating on the Class E notes issued by FCT Marsollier Mortgages (the Issuer).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the June 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class E notes to cover the expected losses at the AAA (sf) rating level.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
The transaction is a securitisation of French residential mortgages originated by BearImmo (part of JP Morgan Bank Dublin Plc) and granted to borrowers in the non-conforming segment of the French mortgage market. The portfolio is serviced by MCS & Associés SA. The transaction closed in April 2009 and DBRS assigned ratings to the Class A to E notes at the transaction’s restructure in August 2012. The transaction’s legal final maturity date is on the payment date in September 2050.
As of the June 2020 payment date, two- to three-month arrears represented 0.3% of the outstanding portfolio balance, down from 1.1% at the June 2019 payment date. As of the June 2020 payment date, the 90+ delinquency ratio was 0.7%, up from 0.3% at the June 2019 payment date, while the cumulative default ratio was 23.7%, slightly up from 22.7% a year ago. Performance is within DBRS Morningstar’s expectations.
Pensioners, self-employed, and unemployed borrowers represent 5.0%, 1.5%, and 0.4% of the outstanding portfolio balance, respectively. In addition, 13.5% of the outstanding portfolio balance have entered over-indebtedness proceedings. DBRS Morningstar incorporated these adverse characteristics in its analysis.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and decreased its base case PD assumption to 74.5% from 75.1%, a year ago, due to the increased seasoning of the portfolio and increased its base case LGD to 49.1% from 27.0%, a year ago, to align its assumption with the observed recovery level, which was lower than expected. Both assumptions also incorporate adjustments addressing the effect of the coronavirus pandemic.
The credit enhancement to the Class E notes consists of the subordination of the junior notes, namely the Class F notes. As of the June 2020 payment date, credit enhancement to the Class E Notes was 86.4%, up from 67.8% a year ago.
The transaction benefits from a non-amortising liquidity reserve, currently at its target amount of EUR 6.5 million, available to cover shortfalls in senior fees and interest on the notes.
BNP Paribas Securities Services SCA acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, 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 E notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
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 rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
For this transaction, DBRS Morningstar increased the expected default rate for self-employed borrowers and incorporated a moderate reduction in residential property values.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-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 DBRS Morningstar-rated RMBS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
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 methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
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 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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor reports provided by France Titrisation and loan-level data provided by MCS & Associés SA.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS 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 purpose 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.
The last rating action on this transaction, following an entire review, took place on 16 August 2019, when DBRS Morningstar confirmed its AAA (sf) ratings on the Class D and E notes. On 21 October 2019, DBRS Morningstar discontinued its rating on the Class D notes, following its repayment in full.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.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 74.5% and 49.1%, respectively.
-- 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 on the Class E notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class E notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class E notes would be expected to fall to BBB (sf).
Class E Notes Risk Sensitivity: -- 25% increase in LGD, expected rating of AAA (sf) -- 50% increase in LGD, expected rating of AA (high) (sf) -- 25% increase in PD, expected rating of AAA (sf) -- 50% increase in PD, expected rating of AAA (sf) -- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf) -- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf) -- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf) -- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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 U.S. regulations only.
Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 13 August 2012
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (14 July 2020) and European RMBS Credit Model, version 188.8.131.52
-- 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
-- Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- 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
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.