DBRS Confirms Charles Street Conduit Asset Backed Securitisation 1 Limited Senior VFN Rating at AA (sf)

DBRS Ratings Limited (DBRS) has today confirmed its AA (sf) rating and removed the Under Review with Negative Implications status on the Senior Variable Funding Notes (VFN) issued by Charles Street Conduit Asset Backed Securitisation 1 Limited (the Issuer).

The rating action is based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of defaults and level of delinquencies.
-- Current available credit enhancement to the Senior VFN to cover the expected losses at the AA (sf) rating level.
-- Portfolio default (PD) rate, loss given default (LGD) rate assumptions on the collateral pool.
-- An amendment to the transaction on 25 November 2015, resulting in the transfer of Control Account Bank to Lloyds Bank plc.

The Issuer is a secured loan facility funded through the issuance of Senior and Subordinated VFN. The loans purchased by the facility are originated by the subsidiaries of Jerrold Holdings Limited (now under the trading name “Together”) and include commercial, residential mortgages and bridging finance.

The portfolio is currently in the revolving commitment period and its performance is in line with DBRS’s expectations. As of November 2015, the 90-day plus delinquency ratio as a percentage of the outstanding receivables remained low at 0.91%. DBRS has maintained its 2-year PD assumption at 1.084% in this rating review.

The Senior VFN is supported by subordination of the Subordinated VFN and the funds available in the commingling reserve. The available credit enhancement for the Senior VFN as of November 2015 was 23.87%, a level similar to DBRS’s last rating review as it is in the commitment period.

On 29 May 2015, DBRS placed Senior VFN’s rating Under Review with Negative Implication (UR-N) following the credit review of the systemic support given to National Westminster Bank Plc (NatWest), the transaction’s Control Account Bank prior to the amendment in November 2015. NatWest is also the Collection Account Bank in the transaction. The credit review concluded on 29 September 2015.

On 25 November 2015, the Issuer transferred the Control Account Bank to Lloyds Bank plc, rated at A (high) / R-1. In DBRS’s opinion, the transfer reduced cash commingling and payment disruption risks in the transaction. Consequently, DBRS has removed UR-N status on the Senior VFN.

Notes:
All figures are in GBP 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.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal 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 the asset and cash flow analysis were conducted for informational purposes.

DBRS conducted a review of the amended agreements relevant to the Control Account Bank. Other transaction legal documents have remained unchanged since the most recent rating action and were not reviewed.

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

The sources of information used for this rating include the investor reports, the amendment legal documents, and the loan by loan data provided by Jerrold Holdings Limited.

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 29 May 2015 when Senior VFN rating was placed Under Review with Negative Implications.

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

To assess the impact of 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 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 assuming the loan-to-value ratio for the Issuer is 67%, are 20.98% and 44.29%, respectively. At the AA (sf) rating level, the corresponding PD is 48.86% and the LGD is 62.30%.

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

Senior VFN Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (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: Kali Sirugudi
Initial Rating Date: 28 October 2014
Initial Rating Committee Chair: Erin Stafford

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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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

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Operational Risk Assessment for European Structured Finance Originators

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