DBRS Upgrades Ratings on Penates Funding N.V./S.A. -Compartment Penates-4

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by Penates Funding N.V./S.A. -Compartment Penates-4:
-- EUR 1,715,435,153.10 Class A notes upgraded to AA (sf) from A (high) (sf);
-- EUR 472,500,000.00 Class B notes upgraded to A (sf) from A (low) (sf).

The rating action reflects an annual surveillance review of the transaction, based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2016 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Updated and more granular rating levels introduced by DBRS’s “Legal Criteria for European Structured Finance Transactions” for Account Bank institution replacement triggers and by DBRS’s “Derivative Criteria for European Structured Finance Transactions”.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the AA (sf) rating level for the Class A notes and the A (sf) rating level for the Class B notes.

The ratings of the Class A and Class B notes address the timely payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in November 2045.

The Issuer is a Belgian securitisation collateralised by a portfolio of first lien residential mortgage loans granted by Dexia Bank Belgium N.V.-S.A. (later redenominated Belfius Bank SA/NV). The transaction follows the standard structure under the Belgian securitisation law and closed in December 2011.

The mortgage pool is well seasoned (over eight years), with 52.7% of the current portfolio originated between 2009 and 2011. The portfolio also includes loans with registered mortgages which do not cover the entire balance of the loan (29.77% of the current pool): for these loans, Belfius Bank SA/NV took a mortgage mandate which gives it a right to convert the mandate into a registered mortgage and enforce the security if required.

The portfolio is performing in line with DBRS’s expectations. As of the February 2016 payment date, 1-30 day delinquencies and 31-60 day delinquencies were 0.48% and 0.11% of the portfolio principal balance, while 61-90 day delinquencies were 0.00%. The gross cumulative default ratio was 0.90% of the Initial Amount of Rated Notes Issued, with cumulative recoveries of 40.52%.

Credit enhancement for the Class A notes, currently at 37.51%, is provided by the subordination of the Class B and Class C notes (34.97%) and the Reserve Fund (2.54%). Credit enhancement for the Class B notes (19.59%) is provided by the subordination of the Class C notes (17.06%) and the Reserve Fund (2.54%).

The transaction structure includes an amortising Reserve Fund, funded at closing with an amount of EUR 117.00 million with the proceeds of the issuance of the Class D notes. This account available to cover senior expenses and missed interest payments on the Class A notes and missed interest payments on the Class B notes, after Class A is redeemed in full. The Reserve Fund is currently at its target level of EUR 66.89 million.

Belfius Bank SA/NV is the Account Bank for this transaction. The DBRS Long-Term Critical Obligations Rating of Belfius Bank SA/NV at A (high) complies with the Minimum Institution Rating given the rating assigned to the notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions”.

Belfius Bank SA/NV also acts as Senior Swap Counterparty and Junior Swap Counterparty. Given the DBRS rating of Belfius Bank SA/NV and the ratings on the Class A and Class B notes, a cash flow scenario was run without considering both Senior and Junior Swaps, based on the “Derivative Criteria for European Structured Finance Transactions” methodology and the downgrade provisions defined in the transaction documents.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the “Master European Structured Finance Surveillance Methodology”. 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 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 this rating include reports provided by Belfius Bank SA/NV and data from the European DataWarehouse GmbH.

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 15 April 2015, when DBRS confirmed the ratings of the Class A and Class B notes at A (high) (sf) and A (low) (sf), respectively. The lead responsibilities for this transaction have been transferred to Joana Seara da Costa.

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 Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. 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 1.12% and 22.69%, respectively. At the AA (sf) rating level, the corresponding PD is 11.28% and the LGD is 32.07%, while at the A (sf) rating level, the corresponding PD and LGD are, respectively, 7.77% and 29.89%.

-- 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 A and the Class B notes would be expected to remain at AA (sf) and A (sf), respectively, assuming no change in the PD. If the PD increases by 50%, the rating of the Class A and the Class B notes would be expected to remain at AA (sf) and A (sf), respectively, assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A and the Class B notes would be expected to remain at AA (sf) and A (sf), respectively.

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class B notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf))
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: Kali Sirugudi
Initial Rating Date: 20 December 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Joana Seara da Costa
Rating Committee Chair: Quincy Tang

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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
-- Master European Structured Finance Surveillance Methodology
-- Derivative 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

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