DBRS Assigns Ratings to Fastnet 6

DBRS Ratings Limited (DBRS) has today assigned ratings to the following notes issued by Fastnet Securities 6 Limited (Fastnet 6):

--AAA (sf) to €36,866,863 outstanding of the Class A1 Mortgage Backed Fixed Rate Notes, paying 1.5% coupon
--AAA (sf) to €494,500,000 outstanding of the Class A2 Mortgage Backed Fixed Rate Notes, paying 1.5% coupon
--A (sf) to €494,500,000 outstanding of the Class A3 Mortgage Backed Fixed Rate Notes, paying 1.5% coupon

Fastnet 6 is a securitisation of a portfolio of residential mortgage loans and secured by first ranking lien mortgages on properties in Ireland, originated by permanent tsb p.l.c. (PTSB), (BB (low)/Neg Trend/R-4/Neg Trend). The transaction closed in November 2008 and has a seasoning of approximately six years. During this time certain structural elements were amended in March 2011 and November 2012. The ratings are assigned to the current structure (as of the 10 November 2014 interest payment date) and based on the following analytical considerations:

• The transaction’s capital structure as of the end of November 2014 provides 100.4% of credit enhancement to the Class A1 Notes, 70.6% to the Class A2 Notes and 40.9% to the Class A3 Notes through subordination and 2.6% through the available reserve fund. Due to the sequential amortisation of the notes, the Class A1, A2 and A3 Notes can withstand severe loss scenarios in line with DBRS AAA (sf) and A (sf) stresses.
• The liquidity in the transaction is provided by the reserve fund which can be used to pay senior costs, interest and the principal deficiency of the Class A Notes. Furthermore, liquidity is made available by principal collections to pay for scheduled interest payments on the Class A Notes in case the revenue funds, including monies from the reserve fund, have not been sufficient.
• The performance of mortgage loans in the Fastnet 6 portfolio has been improving over the past months, e.g. 90+ in arrears decreased from 19.4% in June to 17.5% in November 2014. In DBRS’s view this has been driven by the improvement in the Irish economy and the housing market, more clarity on legal and regulatory treatments of highly delinquent borrowers and consequently a more active servicing by PTSB to solve high arrears cases. DBRS has considered these improvements in its PD and LGD assumptions.
• Non-performing loans (which, according to DBRS’s definition, are loans in arrears more than 12 months or loans that had been modified and are in arrears for more than three months) still account for roughly 15.2% of the outstanding portfolio balance as of November 2014. DBRS assumed that these loans will be enforced with the realised cash flows stemming from the sale price of the underlying property adjusted for DBRS market value declines.
• The transactions servicing arrangements which consist of PTSB being the servicer of the transaction, Homeloan Management Limited (NR) acting as back-up servicer, BNP Paribas, London Branch (privately rated by DBRS) acting as back-up servicer facilitator and BNP Paribas Securities Services, London Branch (privately rated by DBRS) acting as back-up cash manager. In DBRS’s view, this set-up can mitigate a potential servicer termination and therefore remedy potential interest shortfalls due to operational issues.
• The Class A1, A2 and A3 Notes pay a fixed coupon of 1.5% while most of the mortgage loans are referenced to the ECB rate (81.4%) or PTSB standard variable rates (SVR 18.2%). DBRS considered the unhedged fixed-floating risk in its cash flow modelling assumptions.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is:
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)

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 PTSB and their agents. 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.

This is the first DBRS rating on this financial instrument.

To assess the impact of potential changes in the transactions’ parameters on the ratings, DBRS considered, in addition to its base case, further stress scenarios for its main rating parameters Probability of Default (PD) and Loss Given Default (LGD) in its cash flow analysis. The two additional stresses assume a 25% and 50% increase in both the PD and LGD assumptions for each series of notes.

The following scenarios constitute the parameters used to determine the ratings (the Base Case):

-- In respect of the Class A1 and A2 Notes and a rating category of AAA (sf), PD of 55.1% and the LGD of 76.6%.

-- In respect of the Class A3 Notes and a rating category of A (sf), PD of 45.6% and the LGD of 64.9%.

DBRS concludes that for the Class A1 Notes a change in either PD or LGD steps of 25% or 50% does not have an impact on the assigned rating, given the short expected maturity.

DBRS concludes that for the Class A2 Notes:
-- A hypothetical increase of the PD by 50% and a constant LGD, ceteris paribus, would lead to a downgrade of the Class A2 Notes to AA (high) (sf).
-- A constant PD and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to AA (high) (sf).
-- A hypothetical increase of both the PD and the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to AA (sf).
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to A (high) (sf).
-- A constant PD and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to AA (sf).
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to A (sf).
-- A hypothetical increase of both the PD and the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A2 Notes to BBB (high) (sf).

In all other scenarios there was no change compared to the assigned ratings.

DBRS concludes that for the Class A3 Notes:
-- A hypothetical increase of the PD by 25% and a constant LGD, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BBB (high) (sf).
-- A hypothetical increase in the PD by 50% and a constant LGD, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BBB (low) (sf).
-- A constant PD and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BBB (low) (sf).
-- A hypothetical increase of both the PD and the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BB (high) (sf).
-- A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BB (sf).
-- A constant PD and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BB (sf).
-- A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to BB (low) (sf).
A hypothetical increase by both the PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A3 Notes to B (high) (sf).

In all other scenarios there was no change compared to the assigned ratings.

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: Sebastian Hoepfner
Initial Final Rating Date: 21 January 2015
Initial Final Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Elisa Scalco

DBRS Ratings Limited
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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
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