DBRS Rates Class A Notes Issued by Wendelstein 2017-1 UG (haftungsbeschränkt)

DBRS Ratings Limited (DBRS) assigned a rating of A (sf) to the EUR 2,300 million Series A notes to be issued by Wendelstein 2017-1 UG (haftungsbeschränkt) (Wendelstein 2017-1; the Issuer).

The Class B Notes are not rated.

The Class A notes have been issued for an amount of EUR 2.3 billion and the total issuance amounts to EUR 2.5 billion. The rating assigned to the Class A notes addresses timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

Wendelstein 2017-1 represents the securitisation of mortgage loans originated in Germany, with the entirety of the loans comprising the initial cover pool originated by Deutsche Bank Bauspar-Aktiengesellschaft (DB Bauspar). The initial asset portfolio, amounting to EUR 2.5 billion, entirely comprised of building-saving (Bauspar) mortgage loans. During a three-year revolving period, the issuer may purchase assets originated by DB Bauspar, Deutsche Bank AG (DB AG) and Deutsche Bank Privat- und Geschäftskunden Aktiengesellschaft (DB Private). Assets originated by the latter two entities may only be purchased after further notes have been issued (see below).

Wendelstein 2017-1 will issue two classes of mortgage-backed notes, Class A notes subordinated by Class B notes (together the Notes). The Class A notes will have an 8% credit support from the subordinated Class B notes. The proceeds of the Notes will be used by the issuer to purchase the mortgage loans as of closing of the transaction. Within six months of closing, the Issuer is entitled to make one further issuance of Class A and Class B notes. The proceeds are used to buy cover pool assets originated by the three originators. That ramped-up cover pool is expected to amount to approximately EUR 25 billion. As set out in the documentation, should the rating of the Class A notes be negatively affected the further issuance and cover pool ramp-up must not be executed.

The mortgage portfolio under Wendelstein 2017-1 will be revolving for a period of three years from closing of the transaction. All loans sold to the issuer, at closing and during the revolving period, will satisfy eligibility criteria. Additionally, new loans sold to the issuer during the revolving period would need to satisfy specific portfolio-level conditions to mitigate the risk of any deterioration in the credit risk profile of the mortgage portfolio as a result of sale of the new loans. The revolving period may be terminated irreversibly upon breach of cumulative loss trigger conditions and a servicer termination event, among other conditions. DBRS has stressed the closing mortgage portfolio in accordance with the conditions applicable for the purchase of new loans during the revolving period.

The Class A notes will receive liquidity support from a liquidity facility of up to EUR 300 million and principal receipts from the mortgage loans. These fund sources will be used if the issuer’s revenue receipts are insufficient to pay interest on the Class A notes. The principal receipts would be applied first before drawdown of any funds from the liquidity facility. Although a missed interest payment on the Class A notes on an interest payment date is not a default event, DBRS has tested the cash flows of the Class A notes for timely payment of interest.

The borrowers in the mortgage portfolio have deposits with DB AG, DB Bauspar and/or DB Private and will potentially have the right of set-off wherever the deposit amount exceeds the protected deposit amount of EUR 100,000 provided by Entschädigungseinrichtung deutscher Banken GmbH. Such risk of set-off by a borrower is mitigated in the transaction. The transaction envisages that within 14 days of a breach of DB AG’s DBRS rating (determined as COR minus one notch) of BBB (low), the relevant servicer will provide an amount to the issuer equal to the aggregate of all borrower deposits in excess of the statutory deposit insurance. Such amount, the set-off reserve amount, will be reckoned on a monthly basis

The collections from the mortgage loans will be credited to the collection account in the name of the relevant servicer. DB Bauspar and DB AG forward the collected funds to DB Private daily and DB Private transfers the collected funds (including those received from DB Bauspar and DB AG) to the issuer's account monthly. In order to mitigate commingling risk, the transaction envisages a reserve amount to be provided by the relevant servicer. Such a reserve will be created if the rating (determined as the COR) of DB AG or the relevant servicer (for servicers other than DB Private) falls below BBB (low); the relevant servicer will provide an amount equal to its actual aggregate collections in the preceding collection period to the issuer. Further, should DB Private become insolvent or stop acting as master servicer, DB Bauspar and DB AG will forward the collected funds to the issuer instead of DB Private. DBRS considers the above commingling reserve to mitigate the commingling risk exposure for the issuer.

The key counterparty roles in the transaction will be performed by DB Private. DB Private is the seller, master servicer, account bank, liquidity facility provider and cash administrator. The issuer is therefore exposed to the risk of concentration of the key roles in the transaction to a single counterparty. The transaction documents envisage the performance of these roles by other eligible counterparties under DBRS’s legal criteria in the event that the rating of DB AG, DB Private's parent, falls below rating triggers in line with DBRS’s criteria for counterparties in structured finance transactions at an A (sf) level. Hence, given the structural mitigants in place, the rating of the Class A notes cannot currently achieve a rating higher than A (sf).

The rating on the Class A notes is based upon the review by DBRS of the analytical considerations as described above.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for this rating are from Deutsche Bank AG and Verband Deutscher Pfandbriefbanken.

DBRS did 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 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 DBRS rating on this financial instrument.

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 rating (the “Base Case”):

In respect of the Series A notes, the PD of 14.1% and LGD of 42.4%, corresponding to an A (sf) stress scenario, were stressed assuming 25% and 50% increase on the PD and LGD:
-- A hypothetical increase of the PD of 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the PD of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the LGD of 25%, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- A hypothetical increase of the LGD of 50%, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- A hypothetical increase of the PD of 25% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (sf).
-- A hypothetical increase of the PD of 25% and LGD by 50%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 25%, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- A hypothetical increase of the PD of 50% and LGD by 50%, ceteris paribus, would lead to a downgrade to 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: Roger Bickert, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 20 November 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

• Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
• Legal Criteria for European Structured Finance Transactions
• Unified Interest Rate Model for European Securitisations
• Operational Risk Assessment for European Structured Finance Servicers
• Operational Risk Assessment for European Structured Finance Originators

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