DBRS Upgrades Ratings of Class D and Class E Notes Issued by FCT Marsollier Mortgages

DBRS Ratings Limited (DBRS) upgraded its ratings of the Class D and Class E Notes (the Rated Notes) issued by FCT Marsollier Mortgages (the Issuer):

--Class D Notes upgraded to AAA (sf) from AA (high) (sf)
--Class E Notes upgraded to AAA (sf) from and AA (sf)

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:

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

FCT Marsollier Mortgages is a securitisation of French residential mortgages originated by Bearimmo (part of JP Morgan Bank Dublin Plc) and granted to borrowers in the non-conforming segment of the French mortgage market. The portfolio is serviced by MCS & Associés SA (MCS).

PORTFOLIO PERFORMANCE
As of the June 2018 payment date, loans more than 90 days delinquent represented 0.6% of the outstanding portfolio balance and the cumulative default rate represented 22.3% of the original portfolio balance. Both arrears and defaults remained within DBRS’s expectations.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 73.9% and 7.9%, respectively.

CREDIT ENHANCEMENT
As of the June 2018 payment date, the CE available to the Class D Notes increased to 76.7%, up from 59.0% 12 months prior. The CE available to the Class E Notes increased to 52.4%, up from 38.3% 12 months prior. The sources of CE are the subordinated notes.

The transaction benefits from a non-amortising Liquidity Reserve, currently at its target amount of EUR 6.5 million, that is available to cover shortfalls in senior fees and interest on the Rated Notes.

BNP Paribas Securities Services, SCA (BNPSS) is the account bank provider to the transaction. Based on the account bank reference rating of BNPSS, which is privately rated by DBRS, and the mitigants outlined in the transaction documents, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class D Notes and the Class E 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 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’s 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 France Titrisation, the Management Company, and loan-by-loan data from MCS.

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 the transaction took place on 19 January 2018, when DBRS discontinued its rating of the Class C Notes. The last rating action on the Rated Notes took place on 17 August 2017, when DBRS upgraded its rating on the Class D Notes to AA (high) (sf) from A (sf) and on the Class E Notes to AA (sf) from BBB (low) (sf).
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 ratings, DBRS considered the following stress scenarios as compared with the parameters used to determine the ratings (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the remaining collateral 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 assumptions for the remaining collateral pool are 73.9% and 7.9%, respectively. At the AAA (sf) rating level, the corresponding PD is 83.5% and the LGD is 29.6%.

-- 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 D 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 D 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 D Notes would be expected to fall to AA (high) (sf).

Class D 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 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 (high) (sf)

Class E 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 A (high) (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 (high) (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: Christian Aufsatz, Managing Director
Initial Rating Date: 13 August 2012

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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
-- 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.