Press Release

DBRS Confirms and Upgrades Ratings on Castell 2017-1 PLC

RMBS
July 06, 2018

DBRS Ratings Limited (DBRS) took the following rating actions on the bonds issued by Castell 2017-1 PLC (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (sf)
-- Class C Notes confirmed at A (low) (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 address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

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.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

Castell 2017-1 PLC is a securitisation of U.K. second-lien mortgage loans originated and serviced by Optimum Credit Limited.

PORTFOLIO PERFORMANCE
The transaction closed in July 2017. As of April 2018, loans that were two- to three-months in arrears represented 0.4% of the outstanding portfolio balance and the 90+ delinquency ratio was 1.0%, both up from 0.0% at closing. As of April 2018, the cumulative loss ratio was 0.0%.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 8.5% and 32.5%, respectively.

CREDIT ENHANCEMENT
As of the April 2018 payment date, credit enhancement to the Class A Notes was 32.1%, up from 25.5% at the DBRS initial rating. Credit enhancement to the Class B Notes was 25.6%, up from 20.5% at the DBRS initial rating. Credit enhancement to the Class C Notes was 17.8%, up from 14.5% at the DBRS initial rating. Credit enhancement to the Class D Notes was 11.9%, up from 10.0% at the DBRS initial rating. Credit enhancement to the Class E Notes was 7.0%, up from 6.3% at the DBRS initial rating. Credit enhancement to the Class F Notes was 2.7%, down from 3.0% at the DBRS initial rating. Credit enhancement to the Class F Notes has decreased because of the increased level of undercollateralisation following the funding of the Liquidity Reserve Fund through the principal waterfall on the first payment date.

Credit enhancement to the rated notes is provided by subordination of junior classes, excluding the Class X Notes, which are repaid through available excess spread, and a General Reserve Fund.

The transaction benefits from a General Reserve Fund of GBP 5.1 million and a Liquidity Reserve Fund of GBP 2.4 million. The General Reserve Fund covers senior fees as well as interest and principal (via the principal deficiency ledgers) on the rated notes. The Liquidity Reserve Fund covers senior fees and interest on the Class A Notes and Class B Notes.

Citibank N.A., London Branch acts as the account bank for the transaction. The DBRS private rating of Citibank N.A., London Branch 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.

NatWest Markets Plc acts as the swap counterparty for the transaction. DBRS's public Long-Term Critical Obligations Rating of NatWest Markets Plc at ‘A’ is above the First Rating Threshold as described in DBRS's "Derivative 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 the “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 investor reports provided by Citibank N.A., London Branch and loan-level data provided by Optimum Credit 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 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 13 July 2017, when DBRS finalised its provisional ratings on the notes.

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 8.5% and 32.5%, 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 remain at AAA (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 (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 A (low) (sf).

Class A 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).
-- 50% increase in PD, expected rating of AA (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 AA (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf).

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf).
-- 50% increase in LGD, expected rating of AA (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 (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 A (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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 BBB (low) (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 BBB (low) (sf).
-- 25% increase in PD, expected rating of BB (high) (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 (high) (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 of BB (high) (sf).
-- 50% increase in LGD, expected rating of BB (sf).
-- 25% increase in PD, expected rating of BB (sf).
-- 50% increase in PD, expected rating of BB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf).

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (high) (sf).
-- 50% increase in LGD, expected rating of B (high) (sf).
-- 25% increase in PD, expected rating of B (high) (sf).
-- 50% increase in PD, expected rating of B (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of B (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf).

For further information on DBRS historic 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: 21 June 2017

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- European RMBS Insight Methodology -- European RMBS Insight: U.K. Addendum
-- 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 [email protected].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.