DBRS Confirms Rating on Newstone Mortgage Securities No. 1 Plc

DBRS Ratings Limited (DBRS) has today confirmed its rating of the Class A Notes of Newstone Mortgage Securities No. 1 Plc (the Issuer) at AAA (sf).

The confirmation of the ratings on the Class A Notes is based on the following analytical considerations, as described more fully below:
-- Portfolio performance, in terms of delinquencies and defaults, as of the March 2015 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Newstone Mortgage Securities No. 1 Plc represents a securitisation of first lien UK non-conforming residential mortgage loans originated by Beacon Homeloans Limited between 2004 and 2010. The loans were then purchased by Redstone Mortgages Limited, a wholly owned subsidiary of Unicredit Bank AG, and subsequently sold to the Issuer at closing of the transaction. Homeloan Management Limited acts as servicer for the transaction.

The non-conforming characteristics of the portfolio include interest-only loans (46.51%), self-employed borrowers (38.83%), loans where the borrower has self-certified income (39.52%) and remortgage loans (66.01%).

As of March 2015, the 90+ delinquency ratio was low at 0.67%, while the 30 to 90 days delinquency ratio was 2.76%. The current cumulative default ratio as a percentage of the original portfolio was negligible (0.04%).

The Class A Notes are mainly supported by the subordinated loan. Credit enhancement for the Class A Notes (as a percentage of the performing portfolio) increased to 15.82% in March 2015, up from 14.03% at rating in May 2014. This has been the result of the amortisation of the Class A Notes.

The transaction benefits from a non-amortising liquidity reserve of GBP 4.17 million (equal to 2.26% of the current balance of the Class A Notes), which pays for interest shortfalls in senior fees and interest on the Class A Notes when collections are insufficient. The liquidity reserve will reduce to zero on any payment date on which the notes are redeemed in full. The liquidity reserve is currently at the initial and target level of GBP 4.17 million.

Elavon Financial Services Limited, UK branch is the account bank for this transaction. The DBRS private rating of Elavon Financial Services Limited, UK branch complies with the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions.”

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. Other methodologies referenced in this transaction are listed at the end of this press release.

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

The sources of information used for this rating include investor reports provided by US Bank Trustee Limited 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 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 not supplied with AUP documents. Data checks were performed, and DBRS did not apply additional cash flow stresses in its scenarios.

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 rating action on the transaction since the Initial Rating Date.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 8.88% and 13.38%, respectively. At the AAA (sf) rating level, the corresponding PD is 33.31% and the LGD is 38.44%.
-- 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 A Notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected fall to AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (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 (low) (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: David Sanchez Rodriguez
Initial Rating Date: 13 May 2014
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Diana Turner

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 (December 2014)
-- Master European Structured Finance Surveillance Methodology (April 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (January 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)
-- Derivative Criteria for European Structured Finance Transactions (October 2014)