DBRS Finalises Provisional Ratings on Dutch Property Finance 2017-1 B.V.

DBRS Ratings Limited (DBRS) has today finalised the provisional ratings on the notes issued by Dutch Property Finance 2017-1 B.V. (the Issuer) as follows:

-- EUR 649,000,000 Class A notes rated AAA (sf)
-- EUR 90,500,000 Class B notes rated AA (sf)
-- EUR 33,600,000 Class C notes rated A (sf)
-- EUR 34,850,000 Class D notes rated BBB (sf)
-- EUR 16,550,000 Class E notes rated BB (sf)

Dutch Property Finance 2017-1 B.V. is a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The notes will be used to fund the purchase of Dutch mortgages from the RNHB mortgage business de-merged from FGH Bank N.V. into Yellow Newco B.V. (currently merged into Vesting Finance Servicing B.V.) (RNHB). Proceeds of the Class G notes will be used to fund the General Reserve Fund.

RNHB is a buy-to-let and mid-market real estate lending business in the Netherlands. It was formed in 2008 when Rijnlandse Hypotheekbank and Nederlandse Hypotheekbank were merged by their parent company, FGH Bank, who in turn were owned by Rabobank. In December 2016, RNHB was acquired by funds managed or advised by CarVal Investors and Arrow Global in a joint venture.

The mortgage portfolio will be serviced by Vesting Finance Servicing B.V. with Intertrust Administrative Services B.V. appointed as a replacement servicer facilitator.

As of May 31, 2017, the portfolio consisted of 8,368 loans with a total portfolio balance of approximately EUR 1.5 billion, net of savings deposits. The average loan is EUR 178,360. The weighted-average (WA) seasoning of the portfolio is 7.4 years with a WA remaining term of 4.3 years. The WA current loan-to-value is comparatively low for a Dutch portfolio at 61.9%. Almost all the loans included in the portfolio are fixed with future resets (99.4%) while the notes pay a floating rate of interest. To address this mismatch the transaction is structured with a balance guaranteed interest rate swap that swaps a fixed interest rate for a three-month Euribor. Of the portfolio, 3.7% is comprised of loans where the borrowers are in arrears (excluding less than one month in arrears). The closing pool is as of June 30, 2017, with an outstanding balance of EUR 850,065,784.

Until July 2022 the seller has the ability to grant, and the Issuer the obligation to purchase, further advances, subject to the adherence of asset conditions. The transaction documents specify criteria that must be complied with during this period in order for the further advances to be sold to the Issuer. DBRS has stressed the portfolio in accordance with the asset conditions to assess the worst case the portfolio characteristics can migrate to.

Credit enhancement for the Class A notes is calculated as 25.65% and is provided by the subordination of the Class B notes to the Class F notes and the general reserve fund. Credit enhancement for the Class B notes is calculated as 15.0% and is provided by the subordination of the Class C notes to the Class F notes and the general reserve fund. Credit enhancement for the Class C notes is calculated as 11.05% and is provided by the subordination of the Class D notes to the Class F notes and the general reserve fund. Credit enhancement for the Class D notes is calculated as 6.95% and is provided by the subordination of the Class E notes to the Class F notes and the general reserve fund. Credit enhancement for the Class E notes is calculated as 5.0% and is provided by the subordination of the Class F notes and the general reserve fund.

The transaction benefits from a non-amortising cash reserve that is available to support the Class A notes to Class E notes. The cash reserve will be fully funded at close at 2.0% of the initial balance of the Class A notes to the Class F notes. Additionally, the notes will be provided with liquidity support from principal receipts that can be used to cover interest shortfalls on the most senior class of notes, provided a credit is applied to the Principal Deficiency Ledgers, in reverse sequential order.

The Issuer has entered into a balance guarantees interest rate swap with The Royal Bank of Scotland PLC (trading as NatWest Markets), to mitigate the fixed interest rate risk from the mortgage loans and the three-month Euribor payable on the notes. The swap documents reflect DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Issuer Account Bank and Paying Agent is Elavon Financial Services DAC, UK Branch. The DBRS private rating of the Issuer Account Bank complies with the threshold for the Account Bank outlined in DBRS “Legal Criteria for European Structured Finance Transactions,” given the ratings assigned to the notes.

The rating of the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date, the ratings of the Class B notes to the Class E notes address the ultimate payment of interest and principal on or before the legal final maturity date. DBRS based the ratings primarily on the following:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collection activities. DBRS calculated portfolio default rates (PDRs), loss given default (LGD) and expected loss outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents. The transaction cash flows were modelled using PDRs and LGD outputs provided by the European RMBS Insight Model. Transaction cash flows were modelled using INTEX DealMaker.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the rating are: “European RMBS Insight Methodology” and “European RMBS Insight: Dutch. Addendum”.

DBRS has applied the principal methodology consistently.

Other methodologies 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 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 data and information used for this rating include include CarVal Investors LLC, RNHB B.V., HSBC Bank plc and their agents.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. DBRS was supplied with third-party assessments. DBRS applied additional credit stress in its rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly issued financial instrument. This is the first rating action since the Initial Rating Date.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered in addition to its Base Case, further stress scenarios for its main rating parameters PDRs and LGD in its cash flow analysis. The additional stresses assume a 25% and 50% increase in both the PDRs and LGD assumptions for each series of notes.

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

-- In respect of the Class A Notes, the PDR and LGD at the AAA (sf) stress scenario of 40.46% and 44.53%
-- In respect of the Class B Notes, the PD and LGD at the AA (sf) stress scenario of 32.22% and 38.53%
-- In respect of the Class C Notes, the PD and LGD at the A (sf) stress scenario of 28.45% and 32.65%
-- In respect of the Class D Notes, the PD and LGD at the BBB (sf) stress scenario of 21.52% and 25.60%
-- In respect of the Class E Notes, the PD and LGD at the BB (sf) stress scenario of 14.24% and 17.86%

DBRS concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus would lead to maintaining the ratings at AAA (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to AA (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AAA (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).

DBRS concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf).

DBRS concludes the following impact on the Class C notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).

DBRS concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf).

DBRS concludes the following impact on the Class E notes:
-- 25% increase of the PD, ceteris paribus would lead to maintaining the ratings at BB (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (low) (sf).
-- 25% increase of the LGD, ceteris paribus would lead to maintaining the ratings at BB (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to B (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to B (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade below B (high) (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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 and US regulations only.

Lead Analyst: Rehanna Sameja, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 4 August 2017

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960]

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Derivative Criteria for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: Dutch Addendum

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