DBRS Assigns Ratings to Fastnet Securities 11

DBRS Ratings Limited (DBRS) has today assigned ratings to the following notes issued by Fastnet Securities 11 Designated Activity Company (Fastnet 11, Issuer):

--AA (high) (sf) to €1,009,000,000 of the Class A1 Mortgage-Backed Variable-Rate Notes, paying an initial coupon of one-month Euribor plus 0.60%.
--AA (high) (sf) to €403,600,000 of the Class A2 Mortgage-Backed Variable-Rate Notes, paying an initial coupon of one-month Euribor plus 0.70%.
--AA (low) (sf) to €302,700,000 of the Class A3 Mortgage-Backed Fixed-Rate Notes, paying an initial coupon of one-month Euribor plus 0.80%.

Fastnet 11 is a securitisation of a portfolio of first-lien mortgage loans in Ireland, originated by permanent tsb p.l.c. (PTSB; rated BB (low) and R-4 with Stable trends by DBRS). The ratings are based on the following analytical considerations:

-- The transaction’s capital structure provides 17% credit enhancement to the Class A1, Class A2 and Class A3 notes (together the Class A notes), through subordination of Class Z notes (15% in size of the total issuance) and a 2% credit support available from the reserve fund. Although the Class A notes have a common principal deficiency ledger (PDL), the sequential paydown of the notes means the effective credit enhancement to each of the Class A1, Class A2 and Class A3 notes is higher than as suggested by the credit enhancement number as stated above.
-- The liquidity in the transaction is provided by the reserve fund, which can be used to pay senior costs and interest on the Class A notes. The liquidity for the rated notes is further supported by a structural feature where principal receipts from the mortgage loans and a liquidity reserve fund (which is 2.50% of the Class A notes in size) can be used to meet any shortfalls in revenue receipts to pay senior costs and interest on the Class A notes.
-- The closing mortgage portfolio aggregates €2.02 billion (as of 18 March 2016) and has been chosen on a random basis from a provisional portfolio (aggregating €3 billion as of 31 December 2015). The Issuer has the option to purchase the remaining portion of the provisional portfolio within a six-month period from closing of the transaction. DBRS has assessed the credit risk of both the closing and the provisional mortgage portfolios. In the event that further loans are sold to the Issuer, DBRS will re-assess the credit risk of the resulting mortgage portfolio and any potential effect on the ratings of the Class A notes. Of the closing mortgage portfolio, 40.98% was originated in the years 2006 to 2009, which have shown relatively worse performance in comparison to other vintage originations by PTSB. In DBRS’s view, the performance of loans of such vintages has been improving, which has been driven by the recovery in the Irish economy and the housing market, more clarity on legal and regulatory treatments of highly delinquent borrowers and, consequently, more active servicing and forbearance measures applied for about 24% of the mortgage portfolio by PTSB to solve high arrears cases. DBRS has considered these improvements in the assessment of the credit risk of the closing mortgage portfolio.
-- The transaction’s servicing arrangements, which consist of PTSB being the servicer of the mortgage portfolio with Homeloan Management Limited (HML) acting as back-up servicer. In DBRS’s view, this set-up can mitigate a potential servicer termination and therefore remedy potential interest shortfalls due to operational issues. Moreover, the rated Class A notes will have necessary liquidity support from the liquidity reserve fund on account of any temporary servicing disruption.
-- The Class A notes pay an interest linked to the one-month Euribor rate and, in comparison, the loans in the mortgage portfolio pay interest linked to European Central Bank rate (ECB; 52.30% of the mortgage portfolio), standard variable rate set by PTSB (SVR; 43.70% of the mortgage portfolio) and the rest pay a fixed rate of interest for a limited period. This gives rise to basis risk that is not hedged in the transaction. To partially mitigate this risk, the servicer, PTSB, is expected to maintain the SVR rate at a minimum of one-month Euribor plus 2.25%, which if breached, the difference would be compensated for by PTSB to the Issuer. Failure by PTSB to compensate the Issuer will trigger the replacement of PTSB as the servicer and also trigger a perfection event of the legal title of the loans. The replacement servicer, per the contract with the Issuer, cannot reduce the SVR below the SVR floor. DBRS has thus given credit to the SVR floor in the cash flow analysis of the transaction structure. DBRS has additionally stressed the historic spread between the ECB rate and one-month Euribor rate in the cash flow analysis.

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 (January 2016).

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

The sources of information used for this rating include PTSB and investor reports of publicly rated Irish RMBS transactions. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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.

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 rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

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

To assess the impact of potential changes in the transactions’ parameters on the ratings, DBRS considered, in addition to its base case, further stress scenarios for its main rating parameters Probability of Default (PD) and Loss Given Default (LGD) in its cash flow analysis. The two additional stresses assume a 25% and 50% increase in both the PD and LGD assumptions for each series of notes.

The following scenarios constitute the parameters used to determine the ratings (the Base Case):

-- In respect of the Class A1 and A2 notes and a rating category of AA (high) (sf), PD of 34.44% and the LGD of 57.97%.

-- In respect of the Class A3 notes and a rating category of AA (low) (sf), PD of 29.65% and the LGD of 54.83%.

DBRS concludes that for the Class A1 notes (amongst other possible changes PD/LGD and impact of such changes to the ratings):
-- A hypothetical increase in both PD and LGD by 25% would lead to downgrade of the rating to AA (low) (sf).
-- A hypothetical increase in both PD and LGD by 50% would lead to downgrade of the rating to A (sf).

DBRS concludes that for the Class A2 notes (amongst other possible changes PD/LGD and impact of such changes to the ratings):
-- A hypothetical increase of the PD and LGD by 25% would lead to a downgrade of the Class A2 notes to A (high) (sf).
-- A hypothetical increase of the PD and LGD by 50% would lead to a downgrade of the Class A2 notes to BBB (sf).

DBRS concludes that for the Class A3 notes (amongst other possible changes PD/LGD and impact of such changes to the ratings):
-- A hypothetical increase of the PD and LGD by 25% would lead to a downgrade of the Class A3 notes to BBB (high) (sf).
-- A hypothetical increase of the PD and LGD by 50% would lead to a downgrade of the Class A3 notes to BB (high) (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, Vice President
Initial Final Rating Date: 24 March 2016
Initial Final Rating Committee Chair: Quincy Tang, Managing Director
Lead Surveillance Analyst: Kevin Ma, Assistant Vice President

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

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