DBRS Assigns Provisional Ratings to Dutch Property Finance 2018-1 B.V.

DBRS Ratings Limited (DBRS) assigned provisional ratings to the notes expected to be issued by Dutch Property Finance 2018-1 B.V. (Issuer) as follows:

-- Class A Notes rated AAA (sf)
-- Class B Notes rated AA (sf)
-- Class C Notes rated A (sf)
-- Class D Notes rated BBB (sf)
-- Class E Notes rated BB (high) (sf)

Dutch Property Finance 2018-1 B.V. is a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The issued notes will be used to fund the purchase of Dutch mortgages originated by RNHB. Proceeds of the Class G Notes will be used to fund the general reserve fund.

RNHB is a buy-to-let and mid-market real estate lending business in the Netherlands. RNHB was formed in 2008 when Rijnlandse Hypotheekbank and Nederlandse Hypotheekbank were merged by their then-parent company, FGH Bank N.V., which in turn was owned by and is now part of Rabobank. In December 2016, RNHB and their loans to be securitised were acquired by a constortium of (i) funds managed by CarVal Investors LLC (CarVal) and (ii) Arrow Global Group, with CarVal holding the majority interest. The mortgage portfolio will be serviced by Vesting Finance Servicing B.V. with Intertrust Administrative Services B.V. appointed as a replacement servicer facilitator.

As of 30 June 2018, the provisional portfolio consisted of 2,472 loans with a total portfolio balance of approximately EUR 527 million. The weighted-average (WA) seasoning of the portfolio is 6.7 years with a WA remaining term of 3.9 years. The WA current loan-to-value is comparatively low for a Dutch portfolio at 61.33%. Almost all the loans included in the portfolio are fixed with future resets (93.5%) while the notes pay a floating rate of interest. To address this interest rate mismatch, the transaction is structured with a balance-guaranteed interest rate swap that swaps a fixed interest rate for a three-month Euribor. Approximately 2.5% of the portfolio comprises loans where the borrowers are in arrears (excluding less than one month in arrears).

Until July 2023, the seller has the ability to grant, and the Issuer the obligation to purchase, further advances—subject to the adherence of asset conditions. The transaction documents specify criteria that must be complied with during this period in order for the further advances to be sold to the Issuer. DBRS stressed the portfolio in accordance with the asset conditions to assess the portfolio’s worst-case scenario.

Credit enhancement for the Class A Notes is calculated as 23.1% and is provided by the subordination of the Class B Notes to the Class F Notes and the general reserve fund. Credit enhancement for the Class B Notes is calculated as 13.3% and is provided by the subordination of the Class C Notes to the Class F Notes and the general reserve fund. Credit enhancement for the Class C Notes is calculated as 9.4% and is provided by the subordination of the Class D Notes to the Class F Notes and the general reserve fund. Credit enhancement for the Class D Notes is calculated as 5.9% and is provided by the subordination of the Class E Notes, Class F Notes and the general reserve fund. Credit enhancement for the Class E Notes is calculated as 5.0% and is provided by the subordination of the Class F Notes and the general reserve fund.

The transaction benefits from a non-amortising cash reserve that is available to support the Class A to Class E Notes. The cash reserve will be fully funded at close at 2.0% of the initial balance of the Class A to the Class F Notes. Additionally, the notes will be provided with liquidity support from principal receipts which can be used to cover interest shortfalls on the most senior class of notes, provided a credit is applied to the principal deficiency ledgers, in reverse sequential order.

The Issuer has entered into a balance-guaranted interest rate swap with NatWest Markets Plc, to mitigate the fixed interest rate risk from the mortgage loans and the three-month Euribor payable on the notes. The swap documents reflect DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Issuer Account Bank and Paying Agent is Elavon Financial Services DAC, UK Branch. The DBRS private rating of the Issuer Account Bank is consistent with the threshold for the Account Bank outlined in DBRS “Legal Criteria for European Structured Finance Transactions”, given the ratings assigned to the notes.

The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date, the ratings of the Class B Notes to the Class E Notes address the ultimate payment of interest and principal on or before the legal final maturity date. DBRS based its ratings primarily on the following:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collection activities. DBRS calculated portfolio default rates (PDRs), loss given default (LGD) and expected loss (EL) outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes according to the terms of the transaction documents. The transaction cash flows were analysed using PDRs and LGD outputs provided by the European RMBS Insight Model. Transaction cash flows were analysed using INTEX DealMaker.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology and presence of legal opinions addressing the assignment of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are “European RMBS Insight Methodology”, “European RMBS Insight: Dutch Addendum” and “Rating European and Commercial Asset-Backed Securitisations”.

DBRS has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

An asset and a cash flow analysis were both conducted. Due to the inclusion of Further Advances in the transaction, the analysis is based on the worst-case asset conditions set forth in the transaction legal documents.

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 information used for these ratings include CarVal Investors LLC, RNHB B.V., HSBC Bank plc and their agents.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

DBRS was supplied with third party assessments. DBRS applied additional cash flow stresses in its 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.

These ratings concern a newly rated financial instrument. These are the first DBRS ratings on this financial instrument.

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 in addition to its base case, further stress scenarios for its main rating parametes PDRs and LGD in its cash flow analysis. The additional stresses assume a 25% and 50% increase in both the PDRs and LGD assumptions for each series of notes.

The following scenarios constitute the parameters used to determing the ratings (the Base Case):

--In respect of the Class A Notes, the PDR and LGD at the AAA (sf) stress scenario of 37.14% and 39.31%
--In respect of the Class B Notes, the PD and LGD at the AA (sf) stress scenario of 31.02% and 33.13%
--In respect of the Class C Notes, the PD and LGD at the A (sf) stress scenario of 26.84% and 27.18%
--In respect of the Class D Notes, the PD and LGD at the BBB (sf) stress scenario of 20.26% and 20.45%
--In respect of the Class E Notes, the PD and LGD at the BB (sf) stress scenario of 14.25% and 15.42%

DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to AAA (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to AA (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AAA (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf)

DBRS concludes the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)

DBRS concludes the following impact on the Class C Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf)

DBRS concludes the following impact on the Class D Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (low) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf)

DBRS concludes the following impact on the Class E Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to B (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: Rehanna Sameja, Vice President
Rating Committee Chair: Quincy Tang, Managing Director
Initial Rating Date: 28 August 2018

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies.

-- European RMBS Insight Methodology
-- European RMBS Insight: Dutch Addendum
-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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.