DBRS Takes Rating Actions on Two Fastnet Securities Transactions

DBRS Ratings Limited (DBRS) took rating actions on two Irish residential mortgage-backed securities transactions: Fastnet Securities 6 Limited (Fastnet 6) and Fastnet Securities 11 Designated Activity Company (Fastnet 11) as follows:

Fastnet 6
-- Class A2 confirmed at AAA (sf)
-- Class A3 upgraded to AA (high) (sf) from AA (sf)

Fastnet 11
-- Class A1 confirmed at AAA (sf)
-- Class A2 confirmed at AAA (sf)
-- Class A3 confirmed at AA (sf)

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults.
-- Loan probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the notes to cover the expected losses at their respective rating levels.

The originator and the servicer in the transactions is permanent tsb p.l.c. (PTSB, rated BB /R-4 by DBRS). Fastnet 6 closed in November 2008, and Fastnet 11 closed in March 2016. Both transactions are backed by portfolios of Irish first-lien residential mortgages.

-- Fastnet 6
The portfolio performance continued to improve with loans more than 90 days in arrears as a percentage of the outstanding portfolio balance decreased to 11.7% as at 30 November 2017, from 13.1% at the last rating review, while loans more than 360 days in arrears decreased to 9.7% from 10.8%. The cumulative realised losses as a percentage of the portfolio balance at the close of transaction remained at 0.01%.

Ireland’s house prices continue to recover across the country. As at November 2017, house prices have increased by 11.7% within Dublin and by 12.8% outside of Dublin year over year. The improvement in the house prices has reduced the loan-to-value (LTV) ratios and expected loss severities of the outstanding mortgages. DBRS has updated the base case PD and LGD assumptions on the remaining portfolio to 23.5% and 38.6%, from 24.2% and 44.6%, respectively.

As the transaction continues to deleverage, CE to the Class A2 and A3 notes has increased to 88.4% and 50.6%, respectively, as at the December 2017 payment date. When considering pro rata pari passu interest priority of payment between Class A2 and A3 notes, both tranches of notes share the same CE of 50.6%. The CE is provided via the subordinated notes and a non-amortising Reserve Fund, currently at its target level. The increased CE and the updated portfolio assumptions prompted Class A3’s rating upgrade.

-- Fastnet 11
The transaction’s performance is still evolving and within DBRS’s expectations. As at 30 November 2017, the loans more than 90 days in arrears increased to 0.8% from 0.6% at the last review, while the loans more than 360 days in arrears were 0.1%. The portfolio’s indexed LTV remained at the similar level as at the last review despite the improving house prices and the limited repurchase activities by Originator. This implies that the borrowers with lower LTV were remortgaging. DBRS has updated the PD and LGD assumptions on the remaining portfolio to 7.9% and 35.3%, from 7.7% and 33.4%, respectively.

The CE available to the Class A1, A2 and A3 notes has increased to 61.7%, 38.3% and 20.7%, respectively. When considering pro rata pari passu interest priority of payment among Class A1, A2 and A3 notes, all notes share the same CE of 20.7%. The CE is provided via the subordinated notes and a non-amortising Reserve Fund, currently at its target level. In addition, there is a provisioning mechanism in the structure allowing the paydown of the notes on balances of loans in longer arrears status by using excess spread. The current level of CE and the updated assumptions are commensurate with notes’ current ratings.

BNP Paribas Securities Services, London Branch (privately rated by DBRS) is the Account Bank in Fastnet 3. The Bank of New York Mellon - London Branch (rated AA /R-1 (high) with Stable trends by DBRS) is the Account Bank for Fastnet 11. Both entities’ reference ratings comply with the Account Bank Minimum Institution Rating criteria, given the ratings of the senior 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 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 respective transaction legal documents was not conducted as the 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 “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 these ratings include the investor reports provided by PTSB and the loan-by-loan data from European Data Warehouse 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 Fastnet 6 took place on 13 January 2017, when DBRS confirmed Class A2 at AAA (sf) and upgraded Class A3 to AA (sf). The last rating action on Fastnet 11 took place on 28 April 2017, when DBRS upgraded Class A1 and A2 to AAA (sf) and Class A3 to AA (sf).

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):

-- For Fastnet 6, the base case PD and LGD assumptions for the remaining collateral pool are 23.5% and 38.6%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 48.2% and 70.9%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 45.6% and 63.4%, respectively.

-- For Fastnet 11, the base case PD and LGD assumptions for the remaining collateral pool are 7.9% and 35.3%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 30.5% and 66.7%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 27.7% and 58.8%, 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 on Fastnet 6 Class A2 would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on Fastnet 6 Class A2 would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on Fastnet 6 Class A2 would be expected to be at AAA (sf).

Fastnet 6 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)

Fastnet 6 Class A3 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 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)

Fastnet 11 Class A1 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 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)

Fastnet 11 Class A2 Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (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 (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 (low) (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 A (high) (sf)

Fastnet 11 Class A3 Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (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 (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 (low) (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)

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, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Fastnet 6 Initial Rating Date: 21 January 2015
Fastnet 11 Initial Rating Date: 24 March 2016

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

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

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

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