Press Release

DBRS Morningstar Downgrades and Discontinues Credit Ratings of Clavel Residential 2 DAC

RMBS

August 16, 2023

DBRS Ratings GmbH (DBRS Morningstar) took rating actions on the Notes issued by Clavel Residential 2 DAC (the Issuer) as follows:

-- Class A Notes, rated AA (high) (sf); downgraded to D (sf) and discontinued - withdrawn
-- Class B Notes, rated A (sf); discontinued - repaid
-- Class C Notes, rated BBB (high) (sf); discontinued - repaid
-- Class D Notes, rated BB (high) (sf); discontinued - repaid
-- Class E Notes, rated B (sf); downgraded to D (sf) and discontinued - withdrawn
-- Class F Notes, rated CCC (sf); downgraded to D (sf) and discontinued - withdrawn

Clavel Residential 2 DAC represents the issuance of notes backed by a series of unitranche bonds issued by a Spanish securitisation fund, which are backed by a portfolio of reperforming Spanish residential mortgage loans represented by mortgage participations and mortgage transfer certificates. The transaction closed in December 2022. For more information, please refer to https://www.dbrsmorningstar.com/issuers/29005/clavel-residential-2-dac.

The credit rating actions follow the termination of the transaction on 2 August 2023 and are based on the following analytical considerations:
(A) The payment in full of the Class B Notes, Class C Notes, and Class D Notes.
(B) The failure to pay the full par amount of principal on the Class A and Class E notes and the failure to pay full principal and interest due on the Class F Notes, in each case before the Class A, Class E and Class F notes were cancelled.

Outstanding balances of EUR 37.6 million, EUR 29.5 million, and EUR 28.2 million were paid in full on the Class B Notes, Class C Notes, and Class D Notes, respectively.

The Class A Notes were redeemed at a discount to par following 100% noteholder consent and the execution of a deed of agreement, with a written-off amount of EUR 4.7 million (1.7% of the outstanding principal balance of EUR 275.7 million). DBRS Morningstar notes that considering the noteholder’s agreement, the default of the Class A Notes is technical in nature and could have potentially been avoided using different final wind-down mechanisms.

The Class E and F Notes were not redeemed in full because the proceeds coming from the issuance of a new transaction, Clavel Residential 3 DAC: https://www.dbrsmorningstar.com/issuers/29493, were used for the redemption of Clavel Residential DAC: https://www.dbrsmorningstar.com/issuers/28252 and Clavel Residential 2 DAC: https://www.dbrsmorningstar.com/issuers/29005/clavel-residential-2-dac and were only enough to cover 77.5% of the outstanding balance of the Class E Notes (EUR 19.8 million out of EUR 25.5 million). As a result, the remaining 22.5% of the Class E Notes and the 100% of the Class F Notes were written off.

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
The principal methodology applicable to the credit ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https:\www.dbrsmorningstar.com\research\409485\master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

In DBRS Morningstar’s opinion, the changes under consideration do not warrant the application of the entire principal methodology.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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 this credit rating include an investor report provided by the U.S. Bank Global Corporate Trust and a notice to noteholders obtained from Euronext Direct.

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

At the time of the initial credit rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

This is the first credit rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Shalva Beshia.

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

Sensitivity analysis is not applicable for these credit rating actions.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2022

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

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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