DBRS Takes Rating Actions on Notes Issued by Mespil 1 RMBS Limited

DBRS Ratings Limited (DBRS) has today discontinued the Class A1 Notes of Mespil 1 RMBS Limited (the Issuer) due to repayment on 22 October 2014. DBRS has also confirmed the Issuer’s Class A2 Notes and Class A3 Notes at AA (sf) and AA (sf), respectively.

The confirmation of the ratings of the Class A2 and A3 Notes is based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the October 2014 payment date.
-- Updated Portfolio Default Rate, Loss Given Default and Expected Loss assumptions for the remaining collateral pool.
-- Incorporation of a sovereign-related stress component to address the impact of macroeconomic variables on collateral performance given the Long-Term Foreign and Local currency rating of A (low) for the Republic of Ireland.
-- Current available credit enhancement for the Class A2 and A3 Notes to cover the expected losses at the AA (sf) rating level.

Mespil 1 RMBS Limited is a securitisation of a portfolio of first ranking prime Irish residential mortgage loans funded by the issuance of four classes of mortgage-backed securities. The mortgages were originated and are serviced by EBS Limited and its wholly owned subsidiary Haven Mortgages Limited.

Approximately 70% of the current portfolio belongs to the 2006, 2007 and 2008 vintages. 34.36% of the pool is located in the Dublin area.

Early arrears and 90+ delinquency ratios are exhibiting a decreasing trend. The 90+ delinquency ratio decreased to 5.97% from 7.32% in October 2013. Approximately 72% of the loans in the current portfolio never fell into arrears.

Deemed losses increased over 2014 and reached the level of EUR 91.18 million. DBRS understands that the increase in losses is due to a conservative approach followed by the Servicer. The deemed loss amount comprises loans which have had arrears greater than 12 months, but also loans which have been subject to significant restructuring irrespective of arrears levels.

To date, the cumulative recoveries represent 3.06% of the deemed losses.

The transaction benefits from a provisioning mechanism which significantly mitigates any delays and low recovery levels. Deemed losses are debited to the Principal Deficiency Ledger (PDL) for the Class Z Notes and thereafter pro-rata to the Class A2 and A3 Notes. This positive feature allows excess spread to be diverted to clear the resultant PDL.

Class A2 and A3 Notes are supported by subordination of Class Z Notes and a non-amortising Reserve Fund. Credit enhancement for both the Class A2 and A3 Notes (as a percentage of the performing portfolio) increased to 33.77% in October 2014, up from 26.00% in February 2012 when the transaction was first rated by DBRS.

The Reserve Fund is available to the Issuer to meet any interest shortfalls on the Class A2 and A3 Notes and for recouping losses debited to the PDLs for these Notes. The Reserve Fund is currently at the target level of EUR 10.00 million (approximately 1.18% of the outstanding balance of the Notes).

BNP Paribas, Dublin Branch is the Account Bank for the transaction. The DBRS private rating of BNP Paribas, Dublin Branch is at least equal to the Minimum Institution Rating given the rating assigned to the Class A2 and A3 Notes, as described in the DBRS Legal Criteria for European Structured Finance.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. 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

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” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include monthly investor reports provided by EBS Limited and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating to be 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 7 November 2013 when DBRS confirmed the ratings of the Class A1, A2 and A3 Notes at AA (sf).

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 historical data. 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 9.95% and 53.63%, respectively. At the AA (sf) rating level, the corresponding PD is 29.74% and the LGD is 72.70%.
• 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 A2 Notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A2 Notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating would be expected to remain at AA (sf).

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

Class A3 Risk Sensitivity:
• 25% increase in LGD, expected rating of ‘A’ (sf)
• 50% increase in LGD, expected rating of BBB (High) (sf)
• 25% increase in PD, expected rating of ‘A’ (sf)
• 50% increase in PD, expected rating of BBB (High) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (High) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BBB (Low) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BBB (Low) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (High) (sf)

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: Kali Sirugudi
Initial Rating Date: 22 February 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Mary Jane Potthoff

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960.

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
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