DBRS Confirms Class A1 and Upgrades Class A2 Notes Issued by Fastnet Securities 3 Limited

DBRS Ratings Limited (DBRS) has today taken rating actions on the Notes issued by Fastnet Securities 3 Limited (Fastnet 3) as follow:

-- Class A1 Notes rating is confirmed at AAA (sf)
-- Class A2 Notes rating is upgraded to A (high) (sf), previously A (low) (sf)

Today’s rating actions are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults
-- Portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool
-- Sovereign credit strength of Republic of Ireland
-- Current available credit enhancement to the Notes to cover the expected losses at the AAA (sf) and A (high) (sf) rating level

Fastnet 3 closed in December 2007 and is a securitisation of first lien Irish residential mortgages originated between 1998 and 2007.

As of 30 September 2015, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance have decreased to 12.01% from 16.45% a year ago. During the same period, loans more than 12 months delinquent have also decreased to 9.95% from 12.41%.

Following the upgrade of Republic of Ireland’s sovereign rating to A from A (low) on 13 March 2015 (http://dbrs.com/research/277813/dbrs-upgrades-republic-of-ireland-to-a-stable-trend.html), DBRS now applies less sovereign stress in the transaction and reduced the two-year probability of default assumption to 1.86% from 2.00% on the collateral pool. There continues to be a portion of the pool experiencing long delinquency and non-payment. DBRS applied additional stresses on those loans.

The house prices in Ireland continue to recover since DBRS first rated the transaction in 2014. As of September 2015, house prices outside Dublin have recovered by 21.5% from the low point in March 2013 and in Dublin by 51.5% from the low point in August 2012 according to the Central Statistics Office.

Following the improved performance of the transaction, the improved Irish sovereign credit strength, and the improved house prices in Ireland, DBRS has reduced the transaction’s lifetime probability of default assumption at the B rating level to 22.75% from 27.35% and loss given default or loss severity assumption to 46.09% from 48.30%. Consequently, DBRS upgraded the Class A2 Notes rating to A (high) (sf).

The credit enhancement available to Class A1 and A2 Notes increased to 87.81% and 41.38% respectively through transaction deleveraging. The sources of credit enhancement are the subordination of junior notes and the non-amortizing reserve fund currently at its target level.

Notes: All figures are in euro 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

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 commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/ published on 24 May 2011.

The sources of information used for this rating include reports provided by Permanent tsb plc 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 since the Initial Rating Date.

The last rating action on this transaction took place on 7 November 2014, when Class A1 and A2 Notes ratings 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 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 22.76% and 46.09%, respectively. At the AAA (sf) rating level for Class A1, the corresponding PD is 48.22% and the LGD is 75.72%. At the A (high) (sf) rating level for Class A2, the PD is 39.60% and the LGD is 64.86%.

-- 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 on the Class A2 Notes would be expected to be at BBB (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A2 Notes would be expected to be at BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Classes A2 Notes would be expected to be at BB (low) (sf).

Class A1 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 AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (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: Sebastian Hoepfner
Initial Rating Date: 7 November 2014
Initial Rating Committee Chair: Erin Stafford

Lead Surveillance Analyst: Kevin Ma
Rating Committee Chair: Mary Jane Potthoff

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

Unified Interest Rate Model for European Securitizations
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

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