DBRS Confirms Ratings on Class A Notes Issued By Penates Funding NV/SA compartment Penates-6

DBRS Ratings Limited (DBRS) confirmed its ratings on the Class A1 and Class A2 notes (Class A Notes) issued by Penates Funding NV/SA compartment Penates-6 (Penates 6 or the Issuer) at AAA (sf).

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- The overall portfolio performance as of the April 2018 payment date, in particular regarding low levels of cumulative net loss and delinquencies;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool; and
-- The current respective levels of credit enhancement (CE) available to the Class A Notes to cover expected losses assumed in line with the AAA (sf) rating level.

The ratings on the Class A Notes address timely payment of interest and ultimate repayment of principal by the legal maturity in May 2051.

Penates 6 is a static securitisation of EUR 5,456.9 million first-lien Belgium residential mortgages originated by Belfius Bank NV/SA (Belfius) or its legal predecessors. The transaction closed on 15 May 2017.

PORTFOLIO PERFORMANCE
As of the April 2018 payment date, 30-day to 60-day delinquencies represented 0.03% of the outstanding principal balance while the balance of loans between 60 and 90 days delinquent was zero. As a ratio of the original portfolio, gross cumulative defaults, where defaults are defined as mortgages more than 90 days in arrears, were 0.01%, of which 42.5% have been recovered.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions on the outstanding portfolio to 1.3% and 16.4%, respectively.

CREDIT ENHANCEMENT
The subordination of the Class B notes and the cash reserve provide CE to the Class A Notes. The Class A1 notes are further supported by the subordination of the Class A2 notes since the principal funds are allocated sequentially. CE for the Class A1 notes increased to 65.6% in April 2018, from 59.0% at closing, while CE for the Class A2 notes increased to 19.5% from 17.5%.

Penates 6 benefits from a non-amortising cash reserve funded through the issuance of the Class C notes, which is available to cover senior fees, expenses and the interest due on the Class A Notes. Since it is replenished below where the Class A principal deficiency ledger is credited in the interest priority of payments, it can also be used to cure principal shortfalls on the Class A Notes. The cash reserve has remained at its target of EUR 30.0 million since closing. The transaction also benefits from a EUR 145.0 million liquidity facility provided by Belfius – equal to 2.9% of the initial Class A Notes balance. The issuer can draw on the liquidity facility to meet any shortfalls of senior fees or interest on the Class A Notes.

Belfius acts as the account bank and is the cap provider for the transaction. In its capacity as cap provider, Belfius’s DBRS Long-Term Critical Obligations Rating of A (high) is consistent with the First Rating Threshold as defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology. In its capacity as account bank, Belfius’s reference rating – one notch below its DBRS Long-Term Critical Obligations Rating of A (high) – is consistent 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 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 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 these ratings include monthly investor and servicer reports provided by Belfius.

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 this transaction took place on 15 May 2017, when DBRS assigned a rating of AAA (sf) to the Class A1 and Class A2 notes.

The lead analyst responsibilities for this transaction have been transferred to Matt Albin.

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

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 receivables are 1.3% and 16.4%, respectively. At the AAA (sf) rating level, the corresponding PD is 19.2% and the LGD is 45.2%.

For example, if the LGD increases by 50%, the rating of the Class A2 notes would be expected to decrease to AA (high) (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A2 notes would be expected to decrease to AA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A2 notes would be expected to decrease to AA (sf), ceteris paribus.

Class A1 notes 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)
-- 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, 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 A2 notes 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 (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, 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 AA (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: Matt Albin, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 May 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 Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Derivative Criteria for European Structured Finance Transactions
-- 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.