DBRS Morningstar Assigns Ratings to B-Arena NV/SA, Compartment No°5

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes issued by B-Arena NV/SA, Compartment N°5 (the Issuer).

-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)

At closing, the Issuer purchased a portfolio of Belgian residential mortgage loans originated by Bank Nagelmackers NV/SA.

The Issuer issued two tranches of mortgage-backed securities (the Class A1 and Class A2 Notes) and entered into the Class B and Class C Subordinated Loan agreements. The Issuer will use the proceeds of the Class A1 Notes, the Class A2 Notes, and the Class B Subordinated Loan to finance the purchase of the mortgage loan portfolio. DBRS Morningstar does not rate the Class B Subordinated Loan or the Class C Subordinated Loan used to finance the reserve account.

The ratings assigned to the Class A1 and Class A2 Notes address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in January 2057.

As of the closing date, the Class A1 Notes and the Class A2 Notes benefit from credit enhancement of 16.5% (calculated as a percentage of the final securitised portfolio), consisting of 15% of subordination of the Class B Subordinated Loan and 1.5% of the cash reserve.

The transaction structure benefits from a nonamortising cash reserve, fully funded at closing and representing 1.5% of the Class A1 Notes, Class A2 Notes, and Class B Subordinated Loan balance (EUR 15 million) at closing. The Issuer also entered into a liquidity facility agreement with Belfius Bank SA/NV (Belfius Bank), which will provide liquidity to the Class A1 and Class A2 Notes. The initial liquidity facility represents 1.8% of the Class A1 and Class A2 Notes’ initial balance and will amortise during the life of the transaction, subject to a EUR 5 million floor.

In addition to the liquidity facility and the cash reserve, liquidity for the Class A1 and Class A2 Notes is also supported by the possibility of using principal collections from mortgage loans to cover interest payments in case not enough interest is available on a specific payment date.

As of the closing date, the portfolio consisted of 8,937 loans with an aggregate principal balance of EUR 1,128.3 million. The number of borrowers is 6,513 and there are 7,421 properties, mainly residential, that comprise the underlying collateral for the securitised portfolio. Most of the loans in the pool (87.8%) were originated more than 36 months ago. Under the terms of the loans, the underlying property collateral acts as security for a range of the borrowers' different borrowings, which can include financings for personal consumption or debt consolidation as well as for purchasing, refurbishing, or constructing a property for residential purposes. All properties financed by construction loans were completed before their assignment to the Issuer and the loans are expected to be fully disbursed before the closing date.

The portfolio mainly comprises amortising loans (93.4%) and a small portion of bullet loans (6.4%). The portfolio, which currently yields 1.7%, consists of fixed-rate loans up to maturity (47.3%) and floating-rate loans referenced to the 3-Year Belgium Government Bond (6.8%) and the 5-Year Belgium Government Bond (45.9%) with future resets every three to five years. Given that the notes are referenced to three-month Euribor, the transaction is exposed to negative carry in an increasing interest rate environment. To mitigate this interest rate risk, at closing, the Issuer entered an interest rate cap with Belfius Bank up to the first optional redemption date (FORD) in January 2028. The cap has an amortising notional that follows the potential outstanding amount of the Class A1 and Class A2 Notes and a strike set at 0.5%. After the FORD, the Class A1 and Class A2 Notes will have their interest rate capped at 4%.

The Class A1 Notes, Class A2 Notes, and Class B Subordinated Loan will amortise sequentially (i.e., the Class A1 Notes will start amortising from the first payment date in April 2023 and the Class A2 Notes will only start amortising once the Class A1 Notes have been fully redeemed). In case of an event of default, the Class A1 and Class A2 Notes rank pro rata and pari passu.

The Issuer account bank, liquidity facility provider, cap counterparty, cash manager, and paying agent is Belfius Bank. Based on DBRS Morningstar’s rating on Belfius Bank (A/R-1(low)/Stable) as well as the liquidity facility and cap counterparty 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 its “Legal Criteria for European Structured Finance Transactions” and “Derivative Criteria for European Structured Finance Transactions”.

DBRS Morningstar based its ratings primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The mortgage portfolio’s credit quality and the servicer’s ability to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss (EL) outputs on the mortgage portfolio, which DBRS Morningstar uses as inputs into its cash flow tool. DBRS Morningstar analysed the mortgage portfolio in accordance with its “Common RMBS Rating Methodology".
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the notes.
-- 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 sovereign rating on the Republic of Belgium, rated AA with a Stable trend by DBRS Morningstar, as of the date of this press release.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the Common RMBS Rating Methodology (7 October 2022), https://www.dbrsmorningstar.com/research/403743/common-rmbs-rating-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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/401817/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings were provided by Bank Nagelmackers SA/NV and include historical performance (static pool defaults, recoveries data and dynamic delinquencies data from Q1 2012 to Q2 2021) and loan-level data as at 31 October 2022.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was not 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.

These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: 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):

In respect of the notes, the PD and LGD at the AAA (sf) stress scenario of 22.4% and 26.7%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A1 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; and
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would not lead to a rating change.

DBRS Morningstar concludes the following impact on the Class A2 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 lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf); and
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (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: https://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.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Alvaro Astarloa, Assistant Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 27 January 2023

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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Common RMBS Rating Methodology (7 October 2022),
https://www.dbrsmorningstar.com/research/403743/common-rmbs-rating-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022),
https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022),
https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://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.