DBRS Takes Rating Actions on B-Arena NV/SA - Compartment 3

DBRS Ratings Limited (“DBRS”) has today confirmed the ratings of AAA (sf) on the Class A1 and Class A2 Notes issued by B-Arena NV/SA – Compartment 3 (the “Issuer”). The ratings of the Notes are also placed Under Review with Developing Implications. The ratings of the Notes are confirmed after a review of the performance of the current portfolio of mortgage loans and placed Under Review with Developing Implications based upon an updated analysis of the transaction exposure to the swap counterparty, The Royal Bank of Scotland plc (“RBS”), following the breach of the Second Trigger Required Ratings, as defined in the swap documentation.

B-Arena NV/SA - Compartment 3 is a securitisation of a portfolio of residential mortgage loans originated by Delta Lloyd Bank NV/SA and serviced by the same bank and its sub-agent Stater Belgium NV. The loans are secured by first ranking mortgage loans on residential properties located in Belgium. The transaction follows the standard structure under the Belgian Securitisation Law and closed in January 2012. The mortgage pool is well-seasoned (over 7 years) and about 32.41% of the loans in the current portfolio were originated in the 2006 and 2007 vintages.
As of the January 2014 payment date, the current 90+ delinquency ratio as a percentage of the performing balance of the portfolio was low at 0.42%, down from the peak of 0.62% reached in October 2013. There are no defaulted loans to date.

The Class A1 and Class A2 Notes are supported by subordination of the Class B Notes and a non-amortising reserve fund of EUR 10.00 million (currently equal to 1.34% of the aggregate balance of the Class A1, Class A2 and Class B Notes) set up at transaction close. The credit enhancement (as a percentage of the performing collateral balance) for the Class A1 and Class A2 Notes has increased to 22.82% from 17.00% at rating. The Class A1 Notes are the most senior class of notes in the structure and share a principal deficiency ledger (PDL) with the Class A2 Notes. Interest payments on the Class A1 and the Class A2 Notes are on a pro rata and pari-passu basis, whereas principal is paid sequentially. Any shortfalls in payment of senior fees and interest on the Class A1 and the Class A2 Notes are also supported by an amortising liquidity funding account. As per the January 2014 payment date, the balance of the reserve fund and the liquidity funding account were at the current target level of EUR 10.00 million and EUR 19.28 million, respectively.

BNP Paribas Fortis NV/SA is the account bank for the transaction. The DBRS public rating of BNP Paribas Fortis NV/SA is at least equal to the Minimum Institution Rating given the rating assigned to the Class A1 and Class A2 Notes, as described in the DBRS Legal Criteria for European Structured Finance. The Royal Bank of Scotland plc is the swap counterparty for the transaction. The current DBRS public rating of RBS complies with the DBRS First Rating Threshold given the rating assigned to the Class A1 and Class A2 Notes and supported by RBS posting collateral, as described in the DBRS Derivative Criteria for European Structured Finance Transactions. However, RBS is in breach of the Second Trigger Required Ratings as defined in the swap documentation. The Issuer has informed DBRS that it is currently discussing with RBS remedial actions to cure or modify the breached trigger. The swap documentation does not include DBRS Rating Thresholds. As a result DBRS is relying on the defined First Trigger Required Ratings and Second Trigger Required Ratings for remedial actions following a downgrade of RBS. Because of the potential for modifications to the swap documentation, DBRS placed the Class A1 and A2 Under Review with Developing Implications and will update the ratings upon notification of successful resolution of the remedial actions and/or modifications taken by the Issuer.

Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is the Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

The sources of information used for this rating include investor reports provided by Intertrust Administrative Services B.V. and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 26 February 2013, when DBRS confirmed the ratings of AAA (sf) to the Class A1 and Class A2 Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
• The base case PD and LGD of the current pool of mortgages for the Issuer are 1.64% and 19.30%, respectively. At the AAA (sf) rating level, the corresponding PD is 22.65% and the LGD is 41.79%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A1 Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A1 Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A1 Notes would be expected to remain at AAA (sf).

Class A1 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD, expected rating of AAA (sf)
• 50% increase in PD, expected rating of AAA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class A2 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD, expected rating of AAA (sf)
• 50% increase in PD, expected rating of AAA (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Initial Lead Analyst: Konstantine Pastras
Initial Rating Date: 25 January 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Erin Stafford

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Derivative Criteria for European Structured Finance Transactions
Master European Structured Finance Surveillance Methodology
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations