DBRS Assigns Final Ratings to Penates Funding N.V./S.A.-Compartment Penates-4 (Penates-4) Notes

DBRS Ratings Limited (DBRS) has today assigned final ratings to certain notes issued under Penates Funding N.V./S.A.-Compartment Penates-4 (Penates-4, issuer) as shown below:

•AAA (sf) rating to the Class A notes aggregating EUR8,077,500,000, paying a margin of 1.20% over 3 months Euribor;
•A (sf) rating to the Class B notes aggregating EUR472,500,000, paying a margin of 1.85% over 3 months Euribor;

The Class C and Class D notes, which are junior to the above class of notes, are not rated.

Penates-4 is a securitisation of a portfolio of first ranking Belgian residential mortgages funded by the issuance of three classes of mortgage-backed notes. The mortgages were originated by Dexia Bank Belgium N.V. – S.A. (Dexia Bank) and will be serviced by Dexia Bank. This is the fourth issuance of pass-through mortgage-backed notes by Dexia Bank.

The final rating of the Class A notes addresses the timely payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the notes. The final rating for Class B notes addresses the ultimate payment of interest and principal by the legal final maturity in accordance with the terms and conditions of the notes. The rating is based upon review by DBRS of the following analytical considerations:

•The transaction’s capital structure and the form and sufficiency of available credit enhancement. Relevant credit enhancement is in the form of subordination and excess spread, if available. The Class A is the most senior class of notes and is supported by subordinated Class B notes (5.25%) and Class C notes (5%). Any shortfalls in payment of senior fees, guaranteed excess margin (0.45%) and interest on Class A notes are supported by an amortising reserve fund (1.3%).

•The basis risk of the issuer on Class B notes is hedged by a basis swap (Junior swap) provided by Dexia Bank (A(high)/R-1(middle)/Under Review-Negative). In the event of downgrade of Dexia Bank below DBRS minimum rating of A for swap counterparties, no collateral will be posted, nor will there be any replacement or guarantor with suitable ratings to cure the counterparty risk for the issuer. DBRS thus views the risk of payment on the Class B notes linked to the credit risk of Dexia Bank.

•The PDLs for each class of notes will record the balances of loans under default which will include loans in arrears for 90 days or more. This structural feature is considered positive as it enables the trapping of excess spread during the recovery period of 24 months for defaulted loans.

•71.62% of the loans in the mortgage portfolio pay a fixed rate of interest (for entire term of the loan) and the rest pay a variable rate of interest linked to OLO rates (for 2 years, 3 years and 5 years maturity) or linked to 12 months treasury bills’ rates. In comparison the interest paid on the notes is linked to 3 month Euribor. The basis risk on account of this mismatch is proposed to be hedged by two separate swaps – a Senior swap and a Junior swap. The Senior swap hedges the basis risk on the balance of Class A notes outstanding and the Junior swap on the outstanding balance of Class B and Class C notes.

•The credit quality of the mortgages backing the notes and ability of the Servicer to perform collection activities on the mortgages.

•The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.

•The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Note:
All figures are in EUR unless otherwise noted.

The principal methodologies applicable are Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda, Legal Criteria for European Structured Finance Transactions and Swap Criteria for European Structured Finance Transactions which can be found on www.dbrs.com.

The sources of information used for this rating include data relating historical performance and repossession data from Dexia Bank and performance history of publicly rated Belgian RMBS deals and mortgage default and house prices’ statistics from National Bank of Belgium. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

For additional information on these ratings, please refer to the linking document.

The full report providing additional analytical detail is available by clicking on the link or by contacting us at info@dbrs.com.

Lead Analyst: Kali Sirugudi
Rating Committee Chair: Claire Mezzanotte
Initial Rating Date: January 12, 2012