DBRS Morningstar Assigns Rating to Securitised Residential Mortgage Portfolio II B.V. (SRMP II B.V.)

DBRS Ratings GmbH (DBRS Morningstar) assigned the following rating to the Class A Notes issued by Securitised Residential Mortgage Portfolio II B.V. (SRMP II B.V. or the Issuer):

-- EUR 1,448,900,000 Class A Notes at AAA (sf)

The rating addresses the timely payment of interest and the Issuer’s obligation to repay principal on the Class A Notes at the maturity date in accordance with transaction documents. DBRS Morningstar does not rate the EUR 76,200,000 Class B Notes.

SRMP II B.V. is a securitisation of a portfolio of Dutch prime residential mortgage loans originated by Achmea Bank N.V. (Achmea) and its subsidiaries (the Seller). Achmea has appointed Quion Services B.V. as its subagent to carry out all primary servicing activities.

The purchase of the initial portfolio is funded through the issuance of the Class A and Class B Notes. The Class A Notes benefit from a 5.00% credit enhancement provided via the subordination of the Class B Notes. Liquidity support for the Class A Notes is provided by the cash advance facility sized at 0.25% of the Class A and Class B Notes’ outstanding principal balance, amortising to a floor of 0.10% of the initial balance of the Class A and Class B Notes. If Achmea’s creditworthiness deteriorates, the Issuer is entitled to withdraw the entire undrawn portion of the cash advance facility account.

As of 30 November 2020, the mortgage portfolio had a current balance of EUR 1.56 billion and is more than 10 years seasoned. DBRS Morningstar calculates the indexed weighted-average current loan to market value of the portfolio as 65.4%.

The portfolio contains 47.6% interest-only mortgage loans, as well as other types of mortgage loans where the repayment vehicle may not in all cases provide for the repayment in full of principal such as bank savings mortgage loans (5.3%), life insurance mortgage loans (8.8%), and investment mortgage loans (1.8%). The remaining 36.5% are repayment mortgage loans.

The weighted-average coupon of the mortgage portfolio is 2.86%. Dutch borrowers tend to favour longer-term fixed-rate products, where mortgage interest rates tend be relatively higher than floating-rate loans. The current fixed-rate proportion in the portfolio is 93.8%, of which 91.3% reset periodically. The interest payable on the rated Class A Notes is fixed at 0.05%, subject to the step-up margin rate of 0.10% on the first optional redemption date in April 2026. DBRS Morningstar has accounted for the interest rate risk in its cash flow analysis.

There are a number of different sources of set-off risk in the Dutch mortgage market, and although subparticipation agreements mitigate the set-off risk within the transaction, DBRS Morningstar has stressed cash flows for set-off risk where this risk remains.

DBRS Morningstar based its rating on a review of the following analytical considerations:

-- The transaction’s cash flow structure and form and sufficiency of available credit enhancement. Credit enhancement for the Class A Notes is provided in the form of subordination via the Class B Notes. At closing, DBRS Morningstar calculates the credit enhancement level at 5.00%. Excess spread may also be available; however, the availability of excess spread is determined by the performance of the portfolio.

-- Liquidity coverage is provided through the cash advance facility that is available to pay senior fees and interest on the Class A Notes in the event of an interest shortfall.

-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents. The transaction cash flows were modelled using portfolio default rates and loss-given default outputs provided by DBRS Morningstar’s European RMBS Insight model. Interest payable on the Class A Notes is fixed, with 93.8% of the portfolio balance linked to a fixed rate of interest, and the remaining portion linked to a floating Standard Variable Rate. The Issuer account bank has the right to charge negative interest rates, and the cash flow assumptions were stressed to assess the risk of negative interest rates on the Issuer account bank. The transaction cash flows were analysed using Intex DealMaker. DBRS Morningstar considered an additional sensitivity scenario of a 0% conditional prepayment rate (CPR) stress. The Class A Notes passed DBRS Morningstar’s AAA stresses in all 0% CPR scenarios.

-- The credit quality of the expected mortgage loans against which the Class A Notes are secured and the ability of the servicer to perform collection activities on the collateral. The Probability of Default (PD) and Loss Given Default (LGD) are based on an assessment of the loan-by-loan data provided by Achmea. The mortgage portfolio was assigned an underwriting score of “High” and a benchmark of “Good” in the European RMBS Insight model.

-- BNG Bank N.V. (BNG) and BNP Paribas SA (BNPP) act as the Issuer account bank and the Issuer back-up account bank for the transaction, respectively. DBRS Morningstar’s private ratings on BNG and public ratings on BNPP comply with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and 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 continue to increase 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, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 2 December 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The 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 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.

ESG CONSIDERATIONS
DBRS Morningstar considered that the presence of 35.3% 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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings in this transaction are the “European RMBS Insight Methodology” (2 April 2020) and European RMBS Insight Model v. 5.0.0.1.,
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology,
and the “European RMBS Insight: Dutch Addendum” (13 March 2020),
https://www.dbrsmorningstar.com/research/357926/european-rmbs-insight-dutch-addendum.

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 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 Achmea Bank N.V. and its representatives. DBRS Morningstar was provided with loan-level data as of 30 November 2020 and historical performance data (static and dynamic delinquencies and defaults, and prepayment data) covering the period from Q1 2007 to Q3 2020. In addition, DBRS Morningstar was provided with data on repossessed properties for the period between 2004 and 2020, historical margins on mortgage products covering 2016 to 2020, and product switch rates from 2017 to 2020.

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, a PD of 21.5% and LGD of 23.6%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (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: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ronja Dahmen, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 27 January 2021

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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. 5.0.0.1.
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Dutch Addendum (13 March 2020),
https://www.dbrsmorningstar.com/research/357926/european-rmbs-insight-dutch-addendum.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019), https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020),
https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020),
https://www.dbrsmorningstar.com/research/367603/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.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.