DBRS Assigns Provisional Ratings to Dilosk RMBS No. 1 Limited

DBRS Ratings Limited (DBRS) has today assigned provisional ratings to the following notes to be issued by Dilosk RMBS No. 1 Limited (the Issuer):

-- EUR Class A at AAA (sf)
-- EUR Class B at AA (sf)
-- EUR Class C at A (sf)
-- EUR Class D at BBB (sf)

The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in Ireland. The mortgage portfolio consists of first-ranking Irish residential mortgages originated by ICS Building Society. Bank of Ireland sold the ICS brand, mortgage platform, broker network and the portfolio of selected mortgages to Dilosk Limited (Dilosk) in September 2014. The Issuer will use the proceeds of the Class A to Class Z notes to purchase the beneficial title of the mortgages from Dilosk.

Dilosk is responsible for servicing the portfolio, however, primary and special servicing responsibilities will be delegated to Capita Asset Services (Capita). Homeloan Management Limited (HML) is the assigned back-up servicer on the transaction.

Dilosk is a limited liability company incorporated in Ireland in August 2013 with the intention of originating Buy-to-Let (BTL) mortgages. Lending is expected to commence in the third quarter of 2015 through a revamped ICS lending platform which was acquired in September 2014. Potential borrowers will be sourced via a nationwide network of brokers. Origination funding is intended to be provided through secured warehouse facilities and eventual securitisation. Dilosk has been regulated by the Central Bank of Ireland as a Retail Credit Firm since August 2014.

As of 31 March 2015, the securities portfolio consists of 1,939 loans and is on a weighted-average basis 5.4 years seasoned, with 58.79% of the portfolio originated from 2010 onwards. The weighted-average loan to value (WALTV) of the portfolio is calculated at 49.61% with an indexed WALTV of 49.05%. The portfolio is concentrated in Dublin, 53.28%, with a relatively low percentage of BTL loans, 12.36%. The underlying loans have performed extremely well through the downturn in the Irish housing market with two borrowers having been more than three months in arrears in the last three and a half years from 31 March 2015.

The weighted-average coupon on the mortgage loans is 4.62%. 85.27% of the portfolio comprises floating rate loans indexed to Dilosk SVR with the remaining 14.73% paying short-term fixed, while the notes are indexed to 3-month Euribor. The SVR rate is floored at 3-month Euribor plus 2.25%. Fixed rate loans where the fixed period ends between closing and April 2016 have the option to extend the fixed rate period for a further three years. Borrowers on SVR also have the option to switch to a three year fixed rate of interest between closing and April 2016. A maximum of 7.5% of the portfolio can take these options. The fixed rate is floored at 2.25%. DBRS stressed the mismatch in interest rate types in its cash flow modelling and assumed the interest rate received from SVR and fixed rates loans is at the floor.

Credit enhancement is provided in the form of subordination of the junior notes and the General Reserve equal to 0.5% of the initial collateral balance. Liquidity support for the rated notes will be provided by an amortising General Reserve, Liquidity Reserve and Principal Receipts. The General Reserve and the Liquidity Reserve will be funded via the proceeds of the Subordinated Loan provided by the Seller. The General Reserve is amortising with a target amount equal to 0.5% of the outstanding collateral balance. The Liquidity Reserve is non-amortising with an initial and target amount equal to 0.5% of the initial collateral balance.

The DBRS rating of the Class A and Class B notes address the timely payment of interest and full payment of principal by the legal final maturity date while the DBRS ratings of the Class C and Class D notes address the ultimate payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the respective notes. DBRS based the ratings primarily on:

• The transaction’s capital structure, form and sufficiency of available credit enhancement and liquidity provisions. Relevant credit enhancement in the form of subordination and a General Reserve to the Class A, B, C and D notes will be 22.50%, 10.50%, 7.50% and 5.50% respectively.
• The mortgage portfolio largely consists (85.27%) of loans which pay interest linked to a standard variable rate (SVR). The SVR has a floor of 3-month Euribor plus 2.25%. Currently 14.73% of the portfolio pays a fixed rate of interest. Fixed rate loans where the fixed period ends between closing and April 2016 have the option to extend the fixed rate period for a further three years. Borrowers on SVR also have the option to switch to a three-year fixed rate of interest between closing and April 2016. A maximum of 7.5% of the portfolio can take up these options with the fixed rate floored at 2.25%. The interest and basis risk present is unhedged. DBRS has assessed the impact in its cash flow analysis and stressed the portfolio interest rates at the specified floors.
• The structural mitigants in place to avoid payment disruption due to operational risks, such as the back-up servicer/cash manager and the liquidity support available to the transaction.
• The ability of the transaction to withstand stressed cash flow assumptions and repay investors in accordance to terms in which they have invested.
• The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

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 referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include Dilosk and their representatives. DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed upon Procedures (AUP) are included in the requested documentation. DBRS was supplied with an AUP. Data checks were performed and DBRS did not apply additional cash flow stresses in its scenarios.

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 rating concerns a newly issued financial instrument.

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

To assess the impact of changing the transaction parameters on the rating of the Class A, Class B, Class C and Class D notes, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-In respect of the Class A notes, the Probability of Default (PD) of 18.25% and Loss Given Default (LGD) of 52.04%, corresponding to a AAA (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-In respect of the Class B notes, the Probability of Default (PD) of 11.58% and Loss Given Default (LGD) of 38.43%, corresponding to a AA (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-In respect of the Class C notes, the Probability of Default (PD) of 7.97% and Loss Given Default (LGD) of 32.00%, corresponding to a A (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.
-In respect of the Class D notes, the Probability of Default (PD) of 4.81% and Loss Given Default (LGD) of 23.92%, corresponding to a BBB (sf) stress scenario, were stressed assuming a 25% and 50% increase on the PD and LGD.

DBRS concludes the following impact on the rated notes:
Class A Notes:

• A hypothetical increase of the PD by 25%, ceteris paribus, would maintain the ratings at AAA (sf)
• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
• A hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the ratings at AAA (sf)
• A hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the ratings at AAA (sf)
• A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
• A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
• A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (high) (sf)
• A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (sf)

Class B Notes:

• A hypothetical increase of the PD by 25%, ceteris paribus, would maintain the ratings at AA (sf)
• A hypothetical increase of the PD by 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf)
• A hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the ratings at AA (sf)
• A hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the ratings at AA (sf)
• A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would maintain the ratings at AA (sf)
• A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would lead to a downgrade to AA (low) (sf)
• A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would lead to a downgrade to AA (low) (sf)
• A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to A (high) (sf)

Class C Notes:

• A hypothetical increase of the PD by 25%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 50%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would lead to a downgrade to A (low) (sf)

Class D Notes:

• A hypothetical increase of the PD by 25%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the PD by 50%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the LGD by 25%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the LGD by 50%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the PD by 25% and the LGD by 25%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the PD by 50% and the LGD by 25%, ceteris paribus, would maintain the ratings at BBB (sf)
• A hypothetical increase of the PD by 25% and the LGD by 50%, ceteris paribus, would maintain the ratings at A (sf)
• A hypothetical increase of the PD by 50% and the LGD by 50%, ceteris paribus, would maintain the ratings at BBB (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: Keith Gorman, Senior Vice President
Initial Rating Date: 12 May 2015
Initial Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Vito Natale

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 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

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375