DBRS Confirms Ratings on Rochester Financing No.2 Plc
RMBSDBRS Ratings Limited (DBRS) confirmed the following ratings on the notes issued by Rochester Financing No.2 Plc (the Issuer):
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (sf)
-- Class D Notes confirmed at BBB (sf)
-- Class E Notes confirmed at BB (high) (sf)
-- Class F Notes confirmed at BB (low) (sf)
The ratings on the Class A to F Notes (together, the Rated Notes) address the timely payment of interest and ultimate repayment of principal.
The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the September 2017 payment date.
-- Updated portfolio default rate (PD), loss given default rate (LGD), and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement (CE) to the Rated Notes to cover the expected losses at their respective rating levels.
Rochester Financing No.2 Plc is a securitisation of U.K. non-conforming residential mortgages originated by DB UK Bank Limited (DB U.K.), Money Partners Limited and Edeus Mortgage Creators Limited. The mortgage portfolio was purchased from DB U.K. and Odin Mortgages Limited (Odin) by Rochester Mortgages Limited (Rochester, Seller), wholly owned by OneSavings Bank (OSB). OSB retains a material net economic interest on no less than 5% of the transaction through holding randomly selected mortgage loans, which would otherwise have been securitised. OneSavings Bank act as Master Servicer. Day-to-day servicing is delegated to Target Servicing Limited (Target) and Home Loan Management acts as the Back-Up Servicer for the transaction.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of 31 August 2017 cut-off date, the 90+ delinquency ratio was at 3.9%, up from 3.8% in August 2016. Cumulative losses were at 0.1%.
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions to 21.7% and 21.3%, respectively.
CREDIT ENHANCEMENT AND RESERVES
CE to the Rated Notes is provided by subordination of junior classes and a General Reserve. Class A CE is currently 39.5%, up from 32.0% at closing. Class B CE is currently 29.2%, up from 23.3% at closing. Class C CE is currently 23.3%, up from 18.3% at closing. Class D CE is currently 18.3%, up from 14.0% at closing. Class E CE is currently 14.2%, up from 10.5% since closing. Class F CE is currently 11.5%, up from 8.3% at closing.
The General Reserve covers shortfalls in senior fees, interest on the Rated Notes, and principal via the Principal Deficiency Legers (PDLs) on the Rated Notes. The target balance of the General Reserve is equal to 3.0% of the initial Rated Notes balance minus the Liquidity Reserve target amount. As the Liquidity Reserve Amortises, the size of the General Reserve increases through available excess spread. At the September 2017 payment date, the General Reserve was at its target level of GBP 5.1 million.
The Liquidity Reserve is sized at 2.0% of the outstanding balance of the Class A to D notes. The Liquidity Reserve covers shortfalls in senior fees and interest on the Class A to D notes. Payment on the Class B, C and D notes are subject to the PDL for each class of notes being less than 25.0% of the outstanding Class balance. At the September 2017 payment date, the Liquidity Reserve was at its target level of GBP 5.4 million.
The Class E and F Notes benefit from a Junior Liquidity Reserve equal to 0.5% of the Class A to F notes. Support to the Class F notes is subject to the PDL being less than 75.0% of the outstanding Class Balance. At the September 2017 payment date, the Junior Liquidity Reserve was at its target level of GBP 1.8 million.
Elavon Financial Services DAC, UK Branch acts as the account bank for the transaction. The DBRS private rating of Elavon Financial Services DAC, UK 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 British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance 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 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.
The sources of data and information used for this rating include investor reports provided by U.S. Bank Trustees Limited and loan-level data provided by Target Servicing Limited.
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 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.
The last rating action on this transaction took place on 20 December 2016 when DBRS confirmed its ratings on the Rated Notes following the publication of DBRS’s “European RMBS Insight: U.K. Addendum”.
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 of the Rated Notes, DBRS considered the following stress scenarios, as compared to 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 21.7% and 21.3%, 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 A notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to fall to AA (high) (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 BBB (high) (sf).
Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (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 (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
Class B notes 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 (high) (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 (low) (sf)
Class C notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (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 BB (high) (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)
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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
Class E notes Risk Sensitivity:
-- 25% increase in LGD, expected rating BB (high) (sf)
-- 50% increase in LGD, expected rating BB (high) (sf)
-- 25% increase in PD, expected rating BB (sf)
-- 50% increase in PD, expected rating BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating BB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating B (sf)
Class F notes Risk Sensitivity:
-- 25% increase in LGD, expected rating BB (low) (sf)
-- 50% increase in LGD, expected rating B (high) (sf)
-- 25% increase in PD, expected rating BB (low) (sf)
-- 50% increase in PD, expected rating B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating 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 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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 26 February 2016
DBRS Ratings Limited
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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
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Interest Rate Stresses for European Structured Finance Methodology
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.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.
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