DBRS Confirms Ratings on Thrones 2014-1 plc

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following bonds issued by Thrones 2014-1 plc (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (sf)

The ratings assigned to the Class A, B, C and F Notes address timely payment of interest and ultimate payment of principal. The ratings assigned to the Class D and E Notes address ultimate payment of interest and ultimate payment of principal.

The confirmation of the ratings on the Class A to Class F Notes (together, the Rated Notes) is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of May 2016.
-- Probability of default, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their current rating levels.

Thrones 2014-1 plc is a securitisation of first-ranking U.K. non-conforming residential mortgages originated by Edeus Mortgages Creators Limited and Victoria Mortgage Funding Limited. The mortgage portfolio is serviced by Mars Capital Finance Limited, with Homeloan Management Limited acting as the back-up servicer.

As of May 2016, two- to three-month arrears were at 1.59%, and the 90+ delinquency ratio was at 4.05%. Current realised losses are low at 0.18%.

As of May 2016, credit enhancement to the Class A Notes was 49.24%, up from 40.59% at the DBRS initial rating. Credit enhancement to the Class B Notes was 37.12%, up from 30.02% at the DBRS initial rating. Credit enhancement to the Class C Notes was 26.15%, up from 20.45% at the DBRS initial rating. Credit enhancement to the Class D Notes was 17.50%, up from 12.90% at the DBRS initial rating. Credit enhancement to the Class E Notes was 11.15%, up from 7.36% at the DBRS initial rating. Credit enhancement to the Class F Notes was 9.42%, up from 5.86% at the DBRS initial rating. Credit enhancement to each class of Rated Notes consists of subordination of junior classes, a non-amortising reserve fund and the Residual Certificates.

As of May 2016, the reserve fund was at the target level of GBP 9.82 million. It was initially funded at 1.50% of the initial collateral balance (GBP 4.60 million) and has been allowed to grow up to its current size. The transaction also includes a non-amortising liquidity reserve of GBP 4.60 million available to cover senior fees and interest shortfall on the most senior class of notes.

Citibank N.A., London Branch holds the Transaction Account for the transaction. The DBRS private rating of Citibank N.A., London Branch complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in GBP 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’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria referenced in this transaction are listed at the end of this press release. These 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include reports and loan level data provided by Mars Capital Finance 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 July 2015, when DBRS confirmed its ratings on the Rated Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 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 for the Issuer are 17.86% and 27.59%, respectively. At the AAA (sf) rating level, the corresponding PD is 50.73% and the LGD is 50.69%.
-- 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 Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf).
-- 50% increase in LGD, expected rating of AAA (sf).
-- 25% increase in PD, expected rating of AAA (sf).
-- 50% increase in PD, expected rating of AAA (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (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 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 A (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf).
-- 50% increase in LGD, expected rating of BBB (sf).
-- 25% increase in PD, expected rating of BBB (low) (sf).
-- 50% increase in PD, expected rating of BB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (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 (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf).

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in LGD, expected rating of BB (high) (sf).
-- 25% increase in PD, expected rating of BBB (low) (sf).
-- 50% increase in PD, expected rating of BB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf).

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf).
-- 50% increase in LGD, expected rating of B (sf).
-- 25% increase in PD, expected rating of B (high) (sf).
-- 50% increase in PD, expected rating of B (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf).

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating below B (sf).
-- 50% increase in LGD, expected rating below B (sf).
-- 25% increase in PD, expected rating below B (sf).
-- 50% increase in PD, expected rating below B (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Asim Zaman
Initial Rating Date: 23 July 2014
Initial Rating Committee Chair: Quincy Tang

Lead Surveillance Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Diana Turner, Senior 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
-- Master European Structured Finance Surveillance Methodology
-- 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.