DBRS Assigns Rating to Phoenix Funding 5 Limited (Phoenix 5) Notes

DBRS Ratings Limited (DBRS) has today assigned ratings to certain notes issued under Phoenix Funding 5 Limited (Phoenix 5, issuer) as shown below. Phoenix 5 is a securitisation of a portfolio of first ranking Irish residential mortgages funded by the issuance of three classes of mortgage—backed notes. The mortgages were originated and are serviced by KBC Bank Ireland plc.

• ‘A’ (high) (sf), Under Review with Negative Implications, rating to the Class A1 notes aggregating EUR 124,600,000 paying a fixed coupon of 1.5% over 1 month Euribor;
• ‘A’ (high) (sf), Under Review with Negative Implications, rating to the Class A2 notes aggregating EUR 258,100,000 paying a fixed coupon of 0.75% over 1 month Euribor and
• ‘A’ (high) (sf), Under Review with Negative Implications, rating to the Class A3 notes aggregating EUR 258,100,000 paying a fixed coupon of 0.1% over 1 month Euribor

The Class Z loan of EUR 249,200,000, which is junior to the above notes, is not rated by DBRS.

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, a reserve fund and excess spread. The Class A1, A2 and A3 will be the senior class of notes in the structure and will be supported by Class Z loan and a reserve fund of 1.75% of the notes issued and the Class Z loan.

• The Phoenix 5 mortgage portfolio consists of loans which currently pay fixed, discounted variable rates and tracker rates of interest. At the end of the fixed rate and discount periods the majority of loans in the portfolio will revert to variable rate of interest linked to a standard variable rate of KBC Bank Ireland. The liabilities are linked to one month Euribor. This basis risk exposure is unhedged in the transaction. DBRS has stressed the portfolio margin based on historical data of KBC Bank Ireland’s SVR rate relative to Euribor.

• 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.

• Incorporation of a sovereign related stress component in our stress scenario due to the rating of the Republic of Ireland at ‘A’ (low), Under Review with Negative Implications.

• As at the date of issuing the rating the Irish sovereign rating is rated ‘A’ (low), Under Review with Negative Implications. Consequently, this is reflected in the rating of ‘A’ (high) (sf), Under Review with Negative Implications of the A1, A2 and A3 notes.

DBRS applied its Irish RMBS Criteria to assess the mortgage loss on the underlying mortgage portfolio for Phoenix 5.

Note:
All figures are in EUR unless otherwise noted.

The principal methodologies applicable are:
• Master European Residential Mortgage-Backed Securities Rating Methodology
• Legal Criteria for European Structured Finance Transactions
• Operational Risk Assessment for European RMBS Servicers
• Unified Interest Rate Model Methodology for European Securitisations

These can be found on dbrs.com under Methodologies. For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area”.

The sources of information used for this rating include data relating historical performance data from KBC Bank Ireland, performance history of Phoenix 2, 3 and 4 since close of the transaction and performance history of publicly rated Irish RMBS deals from Intex. House prices’ statistics maintained by Central Statistics Office, Ireland. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is a newly created financial instrument.

This is the first DBRS rating on this financial instrument.

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

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

Lead Analyst: Alastair Bigley
Rating Committee Chair: Erin Stafford
Initial Rating Date: 6 June 2012