DBRS Confirms Ratings on Mespil 1 RMBS Designated Activity Company

DBRS Ratings Limited (DBRS) took the following rating actions on the bonds issued by Mespil 1 RMBS Designated Activity Company (Mespil 1 or the Issuer):

-- Class A2 confirmed at AAA (sf)
-- Class A3 confirmed at AAA (sf)

The ratings on the Class A2 and A3 notes (together, the Class A Notes) address the timely payment of interest and ultimate payment of principal.

The rating actions on the Class A Notes follow an annual review of the transaction and are based on the following analytical considerations as described more fully below:
-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Mespil 1 is a securitisation of Irish prime residential mortgages, originated and serviced by EBS d.a.c. and its wholly owned subsidiary Haven Mortgages Limited.

PORTFOLIO PERFORMANCE
As of August 2017, the 90+ delinquency ratio was 6.07%, down from 7.72% in August 2016. Over the same period, the total percentage of loans in arrears has fallen to 7.64% from 10.02%.

PORTFOLIO ASSUMPTIONS
DBRS has reduced its Base Case Probability of Default (PD) and Loss Given Default (LGD) assumptions on the remaining collateral pool to 14.53% and 34.38% from 18.12% and 41.46%, respectively. The reductions in PD and LGD have been driven by both the improved performance of the collateral pool and the continued recovery in Irish residential house prices, which have reduced loan-to-value ratios and expected loss severities.

CREDIT ENHANCEMENT
As of the September 2017 payment date, credit enhancement to the Class A Notes was 42.49%, up from 26.00% at the time of DBRS’s initial rating. Credit enhancement to the Class A Notes consists of subordination of the Class Z Loan and a non-amortising Reserve Fund of EUR 10 million that is available to cover senior fees, interest and principal (via the principal deficiency ledger) on the Class A Notes. DBRS recognises that although both the Class A2 and Class A3 notes benefit from the same level of credit enhancement as they rank pro rata and pari passu in terms of deemed loss (debit of the principal deficiency ledgers), the sequential repayment structure of the transaction before a note event of default affords additional credit protection to the Class A2 notes, as detailed in the Risk Sensitivity overview section of this press release.

BNP Paribas, Dublin Branch acts as the account bank for each transaction. The DBRS private rating of BNP Paribas, Dublin Branch complies with the Minimum Institution Rating, given the ratings assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of data and information used for these ratings include reports and loan-level data provided by EBS d.a.c. and European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

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

The last rating action on this transaction took place on 14 November 2016, when DBRS upgraded the ratings on the Class A Notes to AAA (sf) from AA (high) (sf).

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 PD and 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 loans for the Issuer are 14.53% and 34.38%, respectively.
-- 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 A2 notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A2 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 A2 notes would be expected to remain at AAA (sf).

Class A2 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 AAA (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf).

Class A3 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).

For further information on DBRS historic 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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 22 February 2012

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The rating methodologies 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