DBRS Confirms Ratings on Thrones 2014-1 Plc

DBRS has today taken the following rating actions on the bonds issued by Thrones 2014-1 Plc (the Issuer):
-- Class A Notes confirmed at AAA (sf);
-- Class B Notes confirmed at AA (sf);
-- Class C Notes confirmed at A (sf);
-- Class D Notes confirmed at BBB (sf);
-- Class E Notes confirmed at BB (sf);
-- Class F Notes confirmed at B (sf).

The confirmation of the ratings on the Class A, B, C, D, E and F Notes is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of May 2015.
-- 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, to the Class B Notes to cover the expected losses at the AA (sf) rating level, to the Class C Notes to cover the expected losses at the A (sf) rating level, to the Class D Notes to cover the expected losses at the BBB (sf) rating level, to the Class E Notes to cover the expected losses at the BB (sf) rating level and to the Class F Notes to cover the expected losses at the B (sf) rating level.

Thrones 2014-1 Plc is a securitisation of first-ranking U.K. non-conforming residential mortgages originated by Edeus Mortgages Creators Limited and Victoria Mortgage Funding Limited. The mortgage portfolio is serviced by Mars Capital Finance Limited, with Homeloan Management Limited acting as the back-up servicer.

The non-conforming characteristics of the portfolio include interest-only loans (85.92%), buy-to-let loans (26.54%), loans where the borrower has self-certified income (46.90%) and loans to borrowers with adverse credit history (12.68% with at least one county court judgment, bankruptcy or Individual Voluntary Arrangement).

As of May 2015, 2 to 3 month arrears are at 1.12%, up from 0.44% in October 2014. The 90+ delinquency ratio was at 2.45%, up from 1.05% in October 2014. The current cumulative default ratio is at 0.25%. Defaulted loans are defined as those where the property has been repossessed.

As of May 2015, credit enhancement to the Class A Notes was 43.84%, up from 40.59% in October 2014. Credit enhancement to the Class B Notes was 32.72%, up from 30.02% in October 2014. Credit enhancement to the Class C Notes was 22.66%, up from 20.45% in October 2014. Credit enhancement to the Class D Notes was 14.72%, up from 12.90% in October 2014. Credit enhancement to the Class E Notes was 8.90%, up from 7.36% in October 2014. Credit enhancement to the Class F Notes was 7.31%, up from 5.86% in October 2014. Credit enhancement to each class of notes consists of subordination of its junior classes, as well as a non-amortising reserve fund and the Residual Certificates.

As of May 2015, the reserve fund was at GBP 6.96 million. It was initially funded at 1.50% of the initial collateral balance (GBP 4.60 million) and is allowed to grow up to a size of 3.20% of the initial collateral balance (GBP 9.82 million). The transaction also includes a liquidity reserve of GBP 4.60 million available to cover senior fees and interest shortfall on the most senior class of notes.

Citibank N.A., London Branch holds the Transaction Account for the transaction. The DBRS private rating of Citibank N.A., London 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” methodology.

Notes:
All figures are in British pounds unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

The sources of information used for this rating include reports provided by Mars Capital Finance Limited, Citibank N.A., London Branch and data from the European DataWarehouse.

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.

This is the first rating action on the transaction since the Initial Rating Date.

Information regarding DBRS ratings, including definitions, policies and methodologies is 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 17.86% and 27.59%, respectively. At the AAA (sf) rating level, the corresponding PD is 51.10% and the LGD is 50.56%.
-- 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 remain at AAA (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 to fall to A (high) (sf).

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

Class B Notes 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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

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

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (sf)
-- 25% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (sf)
-- 50% increase in LGD, expected rating of B (sf)
-- 25% increase in PD, expected rating of B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Asim Zaman
Initial Rating Date: 7 August 2014
Initial Rating Committee Chair: Quincy Tang

Lead Surveillance Analyst: Andrew Lynch
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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 (July 2015)
-- Unified Interest Rate Model for European Securitisations (January 2013)

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