DBRS Upgrades Ratings on Mespil 1 RMBS Limited

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the bonds issued by Mespil 1 RMBS Limited (the Issuer):

-- Class A2 Notes upgraded to AA (high) (sf)
-- Class A3 Notes upgraded to AA (high) (sf)

The rating actions on the Class A2 and Class A3 Notes are based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of September 2015.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Sovereign credit strength of the Republic of Ireland.
-- Current available credit enhancement to the Class A2 and Class A3 Notes to cover the expected losses at the AA (high) (sf) rating level.

Mespil 1 RMBS Limited is a securitisation of Irish prime residential mortgages. The mortgages were originated and are serviced by EBS Limited and its wholly owned subsidiary Haven Mortgages Limited.

As of September 2015, the 90+ delinquency ratio is 9.01%, down from 11.96% in September 2014. Over the same period, the total percentage of loans in arrears has fallen to 11.48% from 14.76%.

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 has reduced the two-year probability of default assumption to 0.81% from 1.70% on the collateral pool.

House prices in Ireland continue to recover since DBRS first rated the transaction in 2012. House prices in Dublin increased by 51.5% and outside Dublin by 21.5% from their low points in August 2012 and March 2013, respectively.
As of October 2015, credit enhancement to the Class A2 and Class A3 Notes was 33.32%, up from 26.00% at the DBRS initial rating. Credit enhancement to the Class A2 and Class A3 Notes consists of subordination of the Class Z Notes and the Reserve Fund.

The transaction benefits from a Reserve Fund that is available to cover senior fees as well as interest and principal shortfall (via the principal deficiency ledger) on the Class A2 and A3 Notes. The Reserve Fund is currently at the target level of EUR 10,001,000.00 and is not permitted to amortise.

BNP Paribas, Dublin Branch acts as account bank for this transaction. The DBRS private rating of BNP Paribas, Dublin Branch complies with the Minimum Institution Rating, given the rating assigned to the Class A2 and Class A3 Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The lead responsibilities for this transaction have been transferred to Andrew Lynch.

Notes:
All figures are in euros 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.

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

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 these ratings include reports provided by EBS Limited 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 these ratings 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 7 November 2014 when DBRS confirmed the ratings of the Class A2 and Class A3 Notes at AA (sf), and discontinued the rating of the Class A1 Notes due to repayment in full.

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 24.64% and 42.05%, respectively. At the AA (high) (sf) rating level, the corresponding PD is 40.16% and the LGD is 66.41%.
-- 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 A3 Notes would be expected to fall to BBB (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A3 Notes would be expected to fall to BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A3 Notes would be expected to fall to BB (sf).

Class A2 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (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 (high) (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 (low) (sf)

Class A3 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Kali Sirugudi
Initial Rating Date: 22 February 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Andrew Lynch
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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Mincing Lane
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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 (September 2015)
-- 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 (November 2015)
-- Unified Interest Rate Model for European Securitisations (October 2015)

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.