DBRS Takes Rating Actions on Notes on Kingswood Mortgages 2015-1 PLC

DBRS Ratings Limited (DBRS) took rating actions on the notes issued by Kingswood Mortgages 2015-1 PLC (Kingswood 2015-1) as follows:

-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AAA (sf) from AA (low) (sf)
-- Class D upgraded to AA (high) (sf) from A (low) (sf)
-- Class E upgraded to AA (low) (sf) from BB (high) (sf)

The rating actions follow a full review of the transaction and were prompted by the significant increase of Credit Enhancement (CE) to the rated notes after the fast paydown of the collateral assets and the following additional analytical considerations:

-- Portfolio performance in terms of delinquencies, and defaults.
-- Probability of default (PD), loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.

Kingswood 2015-1, which closed in July 2015, is a securitisation of a portfolio of German residential mortgages originated by Paratus AMC GmbH (formerly GMAC-RFC Bank GmbH) and initially securitised into E-MAC DE 2009-1 B.V.

L2 B.V., wholly owned by Macquarie Bank Limited, London Branch (Macquarie Bank London), acquired the portfolio in 2014 and sold the performing part into Kingswood 2015-1. L2 B.V. acts as the Master Servicer of the portfolio and delegates the day-to-day servicing of the portfolio to the Sub-Servicer, Servicing Advisors Deutschland GmbH.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The collateral pool has paid down quickly as the borrowers refinanced their mortgages without prepayment penalties at the expiration of the fixed rates period. The refinance rate has been higher than DBRS expected. As a result, the increase in CE to the rated notes is faster and the rate reset risks are lower than expected. DBRS expects the prepayment and refinancing activities to slow down until the next major group of loans are due for rate reset in 2022.

The total arrears in the portfolio has increased since the last review in July 2017, mainly driven by the reduced size of the outstanding collateral pool. As of 31 December 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance increased slightly to 1.34% from 1.26% at the last review. At the same time, loans more than 30 days delinquent increased significantly to 7.68% from 4.62%. DBRS does not expect the performance of the collateral pool to deteriorate further as the percentage of loans in arrears by more than 60 days has remained stable. The increase in the short-term arrears was most likely driven by the refinancing activities. The cumulative default rate as a percentage of the portfolio balance at the transaction closing doubled to 0.8% from 0.4% at the last review, and was within DBRS’s expectations.

DBRS has maintained the base-case PD and LGD assumptions for the remaining collateral pool at 9.0% and 48.4%, respectively.

CREDIT ENHANCEMENT
The CEs to all the rated notes have increased. As of the January 2018 payment date, the CEs to the Class A, B, C, D and E notes have increased to 102.1%, 71.0%, 59.0%, 50.4%, and 40.5%, respectively. The sources of CE are the subordinations, the Reserve Fund and the overcollateralisation.

Citibank N.A., London Branch is the Account Bank to the transaction, and its current DBRS private rating meets the Minimum Institution Rating criteria given the rating assigned to the Class A, B, and C notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Macquarie Bank London is the swap counterparty to the transaction. DBRS’s Equivalent Rating of Macquarie Bank London complies with the first rating threshold given the rating assigned to the rated notes, as described in DBRS’s “Derivative 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 transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in the 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 these rating actions include the investor reports provided by Citibank N.A. Agency and Trust and the loan-by-loan data from 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 took place on 14 July 2017, when DBRS confirmed the Class A notes and upgraded the Class B, C, D, and E notes.

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”):

-- The base-case PD and LGD assumptions for the remaining collateral pool are 9.0% and 48.4%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 33.6% and 60.1%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 30.8% and 58.7%, respectively. At the AA (low) (sf) rating level, the corresponding PD and LGD are 26.2% and 56.6%, 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 the 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 the Class A 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 the Class A would be expected to be at AAA (sf).

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 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 B 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 C 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 D 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)

Class E Notes 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 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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (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: Vito Natale, Senior Vice President
Initial Rating Date: 26 June 2015

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
-- Derivative Criteria 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.