DBRS Confirms Ratings on Fastnet Securities 11

DBRS Ratings Limited (DBRS) has today confirmed its rating on the following notes issued by Fastnet Securities 11 Designated Activity Company (Fastnet 11, Issuer):

--AA (high) (sf) to €1,454,200,000 on the Class A1 Mortgage-Backed Variable-Rate Notes, paying an initial coupon of one-month Euribor plus 0.60%.
--AA (high) (sf) to €581,600,000 on the Class A2 Mortgage-Backed Variable-Rate Notes, paying an initial coupon of one-month Euribor plus 0.70%.
--AA (low) (sf) to €436,200,000 on the Class A3 Mortgage-Backed Fixed-Rate Notes, paying an initial coupon of one-month Euribor plus 0.80%.

The confirmation of the ratings on the rated notes includes the following notes issued by Fastnet 11 on 24 March 2016, when the transaction closed:

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

The Class A1 notes have now increased in size by €445.20 million, Class A2 notes by €178 million and Class A3 notes by €133.50 million.

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 Issuer purchased further loans aggregating €890.38 million from PTSB. The resultant mortgage portfolio after the sale of the new loans has not altered the credit risk of the mortgage portfolio materially.

The Issuer purchased new loans by using the proceeds of the issuance of further Class A1, Class A2, Class A3 and Class Z notes. The additional issuance of the notes has maintained the subordination and credit enhancement of the rated notes.

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. Effective credit enhancement for Class A1 notes can be up to 52%, for Class A2 notes up to 32% and for Class A3 is 17%. This is on account of sequential paydown of the Class A notes.
-- 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 aggregated €2.02 billion (as of 18 March 2016) and was chosen on a random basis from a provisional portfolio (aggregating €3 billion as of 31 December 2015). The Issuer has now purchased the remaining loans, aggregating approximately €886.69 million from the provisional portfolio (excluding the loans redeemed and those ineligible) from PTSB. On the date of initial rating, DBRS has assessed the credit risk of both the closing and the provisional mortgage portfolios. DBRS credit risk assessment of the resultant mortgage portfolio after the sale of new loans is not materially different from that of the provisional or 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 the European Central Bank (ECB) rate (51.98% of the mortgage portfolio), the standard variable rate (SVR) set by PTSB (43.33% of the mortgage portfolio) and the rest pay a fixed rate of interest (4.70% of the mortgage portfolio) 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 before the date of initial rating, i.e. 24 March 2016, which did not impact the rating analysis. No separate third-party assessment has been provided on the new loans purchased. 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 is the first rating action since the Initial Rating Date. The rating concerns confirmation of ratings on the upsized Class A1, Class A2, Class A3 notes for the amounts indicated above.

The last rating action on this transaction took place on 24 March 2016, when the transaction closed.

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
Initial Final Rating Date: 24 March 2016
Initial Final Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Kevin Ma

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY 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
-- 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