DBRS Confirms Ratings of iARENA B.V.

DBRS Ratings Limited (DBRS) has today confirmed the ratings of iARENA B.V. (the Issuer) as follows:

-- Class A1 Notes at A (sf)
-- Class A2 Notes at A (sf)
-- Class A3 Notes at A (sf)
-- Class A4 Notes at A (sf)

The transaction is a securitisation of prime residential mortgage loans originated in the Kingdom of the Netherlands by Amstelhuys, Delta Lloyd Bank and Delta Lloyd Levensverzekering. Delta Lloyd Bank is the named servicer on the transaction and outsources certain elements of the servicing process to Stater Nederland B.V.

The loan portfolio that the rated notes are secured against consists of first-lien loans with an average principal balance of approximately EUR 225,000 and a weighted-average seasoning of over three years.

The weighted-average Loan to Foreclosure Value (WALTFV) is 93.13%, down from 96.77% as of August 2014. The loan portfolio has a higher portion of amortising loans than is typically seen in Dutch residential mortgage-backed securities (RMBS) transactions. Likewise, the portion of annuity loans is higher than seen in certain other Dutch RMBS transaction. Therefore, all other things being equal, the WALTFV was expected to decrease over time as borrowers de-lever.

The loan portfolio consists of approximately 33% of loans that are back by a NHG guarantee. DBRS views this as credit positive, as typically NHG loans show lower default rates (owing to the eligibility conditions of the NHG scheme) and also lower losses, as losses are guaranteed if the underwriting of the loan follows NHG requirements.

The transaction has a long revolving period that could last up to August 2026. During the replenishment period, there are limitations on the nature of the loans being placed into the transaction and there are also stop purchase events. DBRS views the conditions that would trigger a stop purchase event, the hitherto good performance of Delta Lloyd originated transactions and the restrictions on the nature of the collateral that can enter the transaction during the replenishment period as a mitigant to the risks resulting from the length of the revolving period.

The transaction consists of both variable and fixed-rate loans. The fixed-rate portion can be subdivided into two, a portion that is fixed for the life of the loan and a portion that is fixed for a defined period (typically five to ten years) after which the borrower can elect a take out a new fixed-rate loan or revert to a variable rate. The transaction does not contain a swap to hedge the risk. The transaction attempts to hedge the interest rate risk by way of the coupon on the Class A1, A2, A3 and A4 Notes. The coupons of these notes are fixed, variable, capped or floored depending on the date and depending on the interest rate environment. For example, the Class A1 Coupon is fixed at 3.35% up until August 2024, it then reverts to three-month Euribor plus 1.5%, with three-month Euribor capped at 6% and floored at 2%. DBRS modified its downward interest rate stress and assumed that in a downward scenario the rate falls to zero for the first five years of the transaction and then recovers to 3.5% thereafter. DBRS assumes that loans that are fixed, but not fixed for life, can refix at the end of their initial fixed-rate period.

The transaction has a non-amortising reserve fund that can cover interest and also be used to cover losses. In addition there is a Cash Advance Facility (CAF) that is sized at 5.5% of the initial note balance (prior to an Optional Redemption Date) that can be used to cover interest in the event of interest shortfall. The reserve fund is held at, and the CAF is provided by, N.V. Bank Nederlandse Gemeenten.

The originator has the option to redeem the Class A1, A2 A3 and A4 Notes at various points in the future. Additionally the Issuer has the ability to upsize the transaction at a future date.
Confirmation of the relevant notes is based upon the following analytical consideration:
-- The transaction’s cash flow structure and form and sufficiency of available credit enhancement. Credit enhancement is provided in the form of subordination of the Class B Notes and reserve fund. Current credit enhancement is calculated at 11.60%.
-- Liquidity coverage is provided through the Cash Reserve and the CAF. At closing the balance of the Cash Reserve was equal to 2.5% of the initial balance of the Class A and Class B Notes. The Cash Reserve is currently at target.
-- The credit quality of the portfolio and the ability of the servicer to perform collection activities on the collateral. A default probability assessment was made on the underlying collateral and the loans expected to be purchased during the revolving period, DBRS stressed the loan-by-loan data in accordance with the portfolio concentration criteria defined in the transaction documents.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents. The transaction cash flows were modelled using portfolio default rates and loss given default outputs provided by the DBRS default model.

DBRS utilised front- and back-loaded default timing curves. The transaction does not have hedging contracts in place to mitigate the interest rate risk. DBRS has stressed the transaction cash flows in accordance with its unified interest rate model.

Notes:
All figures are in euro unless otherwise noted.
The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. Due to the inclusion of a revolving period in the transaction, the collateral was initially modelled based on the worst-case replenishment criteria set forth in the transaction legal documents. These assumptions have not changed and consequently no asset or cash flow analysis was conducted. A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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: a loan-by-loan data tape of the provisional mortgage portfolio originated by Amstelhuys, Delta Lloyd Bank or Delta Lloyd Levensverzekeringen, default and repossession data covering a period of five years and historical dynamic performance data of prior Delta Lloyd originated securitisations.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was not supplied with third-party assessments. However this did not impact the rating analysis.

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 28 May 2014, when the ratings for each class of Notes were assigned.

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 current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- In respect of Class A Notes, the PD of 12.27%, and LGD of 36.95% corresponding to A (sf) stress scenario were stressed assuming a 25% and 50% increase on the PD and LGD.

-- 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 ratings for the Class A Notes would be expected to be lowered to AA (sf), all else equal. If the PD increases by 50%, the ratings for the Class A Notes would be expected to be lowered to AA (sf), all else equal. Furthermore, if both the PD and LGD increase by 50%, the ratings for the Class A Notes would be expected to decrease to A (high) (sf).

Class A Notes Risk Sensitivity (all outstanding Classes):
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in LGD and 25% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in LGD and 50% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in LGD and 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in LGD and 50% increase in PD, expected rating of BB (high) (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: Alastair Bigley
Initial Rating Date: 28 May 2014
Initial Rating Committee Chair: Claire Mezzanotte

Last Rating Date: 26 May 2015

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Diana Turner

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
-- 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

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