DBRS Finalises Provisional Ratings on FT RMBS Prado II
RMBSDBRS Ratings Limited (DBRS) has today finalised its provisional rating of AAA (sf) on the Class A Notes issued by FT RMBS Prado II (the Issuer).
The rating on the Class A Notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The Issuer is a securitisation of residential mortgage loans secured by first-lien mortgages originated by Unión De Créditos Inmobiliarios S.A., E.F.C. (UCI or the Seller) in Spain. The Issuer used the proceeds of the Class A Notes and a subordinated loan (Subordinated Loan 1) to fund the purchase of the mortgage portfolio from the Seller. UCI is also the servicer of the portfolio. In addition, UCI has provided a separate additional subordinated loan (Subordinated Loan 2) to fund both the initial expenses and the Reserve Fund. The securitisation took place in the form of a fund in accordance with Spanish Securitisation Law.
This is the second residential mortgage-backed securities (RMBS) transaction originated by UCI under the Prado series and the first rated by DBRS.
The originator and servicer of the transaction is UCI, which is jointly owned by Banco Santander and BNP Paribas. The Account Bank and the Principal Paying Agent is BNP Paribas Securities Services SA, Spanish branch. DBRS’s private ratings on the Account Bank and the Principal Paying Agent comply with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the AAA (sf) rating assigned to the Class A Notes.
The rating is based on DBRS’s review of the following analytical considerations:
-- The transaction’s capital structure as well as the form and sufficiency of available credit enhancement. The Class A Notes benefit from EUR 119 million (22.0%) subordination provided by the Subordinated Loan 1 disbursement. The notes will benefit from a Reserve Fund (EUR 16.2 million), funded through the Subordinated Loan 2, which is available to cover senior expenses and interest of the Class A Notes until paid in full. The Reserve Fund will amortise with a target equal to 3.00% of the portfolio outstanding with a floor at 1.00%.
-- DBRS was provided with the final portfolio equal to EUR 540 million as of 15 March 2016. The main characteristics of the total portfolio include: (1) 52.6% weighted-average current loan-to-value on current property value (WACLTV), and 63.6% indexed WACLTV (Instituto National de Estadistica Q3 2015); (2) the top three geographical concentrations of Madrid (28.1%), Catalonia (23.3%) and Andalusia (20.8%); (3) WA loan seasoning of 6.3 years; and (4) the WA remaining term of the portfolio at 26.3 years with 42.3% of the loans having a remaining term greater than 30 years.
-- The loans are floating-rate mortgages linked to 12-month Euribor (62.6%), Índice de Referencia de Préstamos Hipotecarios IRPH, (32.4%) or 12-month Mibor (4.9%) and residually paying six month- and three-month Mibor (0.3%). Approximately 17.0% of the portfolio is currently paying a short-term fixed rate for residual 2.1 years on a WA basis. The notes are floating-rate liabilities indexed to three-month Euribor. The loans in the portfolio are paying monthly instalments while the Class A Notes will pay a quarterly coupon. The interest rate risk and basis risk are unhedged. Amounts standing in the Reserve Fund are available to cover the interest rate and basis risk for the rated notes. DBRS stressed the interest rates as described in its “Unified Interest Rate Model for European Securitisations” methodology.
-- The credit quality of the mortgages backing the notes and the ability of the servicer to perform its servicing responsibilities. DBRS was provided with UCI’s historical mortgage performance data. Details of the probability of default (PD), loss given default (LGD) and expected losses (EL) resulting from DBRS’s credit analysis of the mortgage portfolio at AAA (sf) stress scenario are detailed below. In accordance with the transaction documentation, the servicers are able to grant loan modifications without consent of the management company within the range of permitted variations. DBRS stressed the margin of the portfolio and extended the maturity to the longest possible date in its cash flow analysis.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
-- Incorporation of a sovereign-related stress component in the stress scenarios because of DBRS’s rating of A (low) with a Stable trend assigned to the Kingdom of Spain.
As a result of the analytical considerations, DBRS derived a base-case PD of 7.27% and LGD of 23.86%, which resulted in EL of 1.73% using the European RMBS Credit Model. DBRS cash flow model assumptions stress the timing of defaults and recoveries, prepayment speeds and interest rates. Based on a combination of these assumptions, a total of 16 cash flow scenarios were applied to test the capital structure and ratings of the notes.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable is Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.
For the assignment of the initial rating, DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
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 sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “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 these rating include performance and portfolio data sourced by UCI. DBRS reviewed the origination and servicing practices of UCI in November 2015. The Originator provided loan-level data and historical performance of mortgage portfolio dating back to 2001. 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.
DBRS does not rely upon third-party due diligence in order to conduct its analysis.
DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
This is the first rating action since the Initial Rating Date.
Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.
To assess the impact of a change in the transaction parameters (probability of defaults and/or loss given default) on the rating of Class A Notes DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- In respect of the Class A Notes and a rating category of AAA (sf), the Probability of Default (PD) of 29.93%, a 25% and 50% increase on the PD.
-- In respect of the Class A Notes and a rating category of AAA (sf), Loss Given Default (LGD) of 59.36%, a 25% and 50% increase on the LGD.
DBRS concludes that for the Class A Notes:
-- A hypothetical increase of the PD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- A hypothetical increase of the PD by 50%, ceteris paribus, would lead to downgrade the Class A Notes to AA (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf)
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (low) (sf).
-- A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (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: Keith Gorman, Senior Vice President
Initial Rating Date: 18 March 2016
Initial Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 29 February 2016 (Provisional Ratings)
Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst
DBRS Ratings Limited
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London EC3M 3BY
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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
-- Operational Risk Assessment for European Structured Finance Originators
-- 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
The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.
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