DBRS Takes Rating Actions on Three SapphireOne Transactions

DBRS Ratings Limited (DBRS) took rating actions on three SapphireOne Mortgages FCT 2016 transactions as follows:

SapphireOne Mortgages FCT 2016-1 (Sapphire 1)
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AA (high) (sf)
-- Class C confirmed at AA (sf)
-- Class D confirmed at A (high) (sf)
-- Class E confirmed at BBB (high) (sf)

SapphireOne Mortgages FCT 2016-2 (Sapphire 2)
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to AA (sf) from A (sf)
-- Class D upgraded to AA (low) (sf) from BBB (sf)
-- Class E upgraded to A (sf) from BB (sf)

SapphireOne Mortgages FCT 2016-3 (Sapphire 3)
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AA (sf)
-- Class C confirmed at A (sf)
-- Class D confirmed at BBB (sf)
-- Class E upgraded to BBB (low) (sf) from BB (sf)

The rating actions follow an annual review of the transactions and are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Portfolio default (PD) rate, loss given default (LGD) and expected loss assumptions per transaction for the remaining collateral pool.
-- Increase, in all three transactions, of the current credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.

Sapphire 1, Sapphire 2 and Sapphire 3 closed in July 2016, November 2016 and December 2016, respectively. The three transactions are securitisations of French debt consolidation residential mortgage loans originated and serviced by My Money Bank S.A. (previously GE Money Bank S.C.A). The transactions have unique structures under which the payment collections from the variable-rate mortgages are reallocated to Issuer principal and revenue funds according to each mortgage’s amortisation schedule set at the corresponding transaction’s initial cut-off date. The majority of the variable-rate mortgages fall under the Instalment Protection Mechanism. The mortgage borrowers pay instalments recalculated only on an annual basis by referring to the amortisation schedules set at the loan origination. Consequently, the market interest rate movements will only affect the floating-rate mortgage borrower instalment amounts at the scheduled annual resets in case of rising interest rates. When interest rates are flat or decreasing, the instalment amount will stay constant, but not decrease.

Please refer to each transaction’s rating report on our website at www.dbrs.com for further detail on the loan and note amortisation mechanism.

PORTFOLIO PERFORMANCE AND ASSSUMPTIONS

The asset portfolios are performing within DBRS’s expectations.

-- SAPPHIRE 1
As of 31 July 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance were at 1.2%, and loans more than 30 days delinquent were at 2.8%. The outstanding default ratio was 2.9%. DBRS has updated the base case PD and LGD assumptions for the remaining collateral pool to 11.1% and 1.6%, respectively.

-- SAPPHIRE 2
As of 31 August 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance were at 0.9%, and loans more than 30 days delinquent were at 2.2%. The outstanding default ratio was 1.8%. DBRS has updated the base case PD and LGD assumptions for the remaining collateral pool to 9.9% and 1.6%, respectively.

-- SAPPHIRE 3
As of 31 August 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance were at 0.9%, and loans more than 30 days delinquent were at 2.2%. The outstanding default ratio was 2.0%. DBRS has updated the base case PD and LGD assumptions for the remaining collateral pool to 11.1% and 2.0%, respectively.

The base case PD and LGD assumptions for Sapphire 3 are higher due to the pool being less seasoned and having a higher loan-to-value ratio than Sapphire 1 and Sapphire 2.

CREDIT ENHANCEMENT AND RESERVES

The CE available to all the rated notes has increased across all three transactions as the transactions deleverage. The sources of CE to each class of notes are the subordinated notes and the Non-Liquidity Reserve Fund. The redemption of the notes increased the amount of the Non-Liquidity Reserve Fund, contributing to the increase of the credit support in each transaction. The Total Reserve Funds are currently at their non-amortising target amount of EUR 21.3 million, 20.0 million and 17.8 million for Sapphire 1, Sapphire 2 and Sapphire 3 respectively. The increased CE prompted the rating upgrades.

For Sapphire 1, as of the 25 August 2017 payment date, the CE available to Class A, B, C, D and E was 23.2%, 17.9%, 14.2%, 11.4% and 8.5%, respectively.

For Sapphire 2, as of the 25 September 2017 payment date, the CE available to Class A, B, C, D and E was 21.3%, 16.9%, 13.2%, 10.7% and 8.5%, respectively.

For Sapphire 3, as of the 25 September 2017 payment date, the CE available to Class A, B, C, D and E was 14.9%, 11.1%, 7.5%, 6.0% and 5.5%, respectively.

Société Générale, S.A. acts as Account Bank to all three transactions. The Account Bank reference rating of AA (low), being one notch below the DBRS Long-Term Critical Obligations Rating (COR) of AA, complies with the Minimum Institution Rating as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the Class A notes in all three transactions.

BNP Paribas S.A. acts as swap counterparty to the Sapphire 1 and Sapphire 3 transactions. BNP Paribas S.A.’s DBRS Long Term Critical Obligations Ratings of AA (high), complies with the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the Class A notes in both Sapphire 1 and Sapphire 3.

HSBC Bank PLC acts as swap counterparty to Sapphire 2. HSBC Bank PLC’s DBRS Private Rating, complies with the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A notes in Sapphire 2.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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 are loan-by-loan data from European DataWarehouse GmbH as well as monthly investor reports provided by the Management Company, EuroTitrisation.

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.

For Sapphire 1, the last rating action took place on 28 July 2017, when DBRS confirmed the rating on the Class A notes and upgraded the non-senior notes.

For Sapphire 2 and Sapphire 3 this is the first rating action since final ratings were assigned. The lead analyst responsibilities for both transaction have been transferred to Kevin Ma.

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 the following stress scenarios, as compared to the parameters used to determine the ratings (the “Base Case”):

-- With regard to each transaction, DBRS expected a base case PD and LGD for the remaining collateral 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.

-- For Sapphire 1, the base case PD and LGD assumptions for the collateral pool are 11.1% and 1.6%, respectively.
-- For Sapphire 2, the base case PD and LGD assumptions for the collateral pool are 9.9% and 1.6%, respectively.
-- For Sapphire 3, the base case PD and LGD assumptions for the collateral pool are 11.1% and 2.0%, respectively.

The PD and LGD assumptions for the relevant rating levels are the following:

-- SAPPHIRE 1
PD LGD
AAA (sf) 34.7% 20.1%
AA (high) (sf) 32.0% 14.1%
AA (sf) 29.0% 12.9%
A (high)(sf) 26.1% 10.8%
BBB (high) (sf) 22.5% 7.7%

-- SAPPHIRE 2
PD LGD
AAA (sf) 33.3% 19.4%
AA (high) (sf) 30.5% 13.4%
AA (sf) 27.6% 12.3%
AA (low) (sf) 26.1% 11.4%
A (sf) 23.8% 9.3%

-- SAPPHIRE 3
PD LGD
AAA (sf) 35.8% 22.1%
AA (sf) 29.9% 14.6%
A (sf) 26.0% 11.4%
BBB (sf) 21.5% 7.6%
BBB (low) (sf) 20.0% 5.9%

-- 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 on Sapphire 1 Class A would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on Sapphire 1 Class A would be expected to be at AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on Sapphire 1 Class A would be expected to be at AA (high) (sf).

Rating Sensitivities per transaction:

-- SAPPHIRE 1

Sapphire 1 Class A 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 AA (high) (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 AA (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf).

Sapphire 1 Class B Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (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 A (high) (sf).

Sapphire 1 Class C 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 (low) (sf).
-- 50% increase in PD, expected rating of A (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (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 (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).

Sapphire 1 Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (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 BBB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf).

Sapphire 1 Class E 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 (sf).
-- 50% increase in PD, expected rating of BB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf).

-- SAPPHIRE 2

Sapphire 2 Class A 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 AA (high) (sf).

Sapphire 2 Class B Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (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).

Sapphire 2 Class C 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 (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf).

Sapphire 2 Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf).
-- 50% increase in LGD, expected rating of AA (low) (sf).
-- 25% increase in PD, expected rating of AA (low) (sf).
-- 50% increase in PD, expected rating of A (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (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 (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf).

Sapphire 2 Class E 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 (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf).

-- SAPPHIRE 3

Sapphire 3 Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf).
-- 50% increase in LGD, expected rating of AA (high) (sf).
-- 25% increase in PD, expected rating of AA (high) (sf).
-- 50% increase in PD, expected rating of AA (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (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 A (high) (sf).

Sapphire 3 Class B 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 A (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (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 (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf).

Sapphire 3 Class C 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 BBB (high) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf).

Sapphire 3 Class D 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 (sf).
-- 50% increase in PD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf).

Sapphire 3 Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD, expected rating of BBB (low) (sf).
-- 50% increase in PD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director

Initial Rating Date Sapphire 1: 7 July 2016
Initial Rating Date Sapphire 2: 20 October 2016
Initial Rating Date Sapphire 3: 8 December 2016

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

-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- 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