DBRS Takes Rating Actions on Charles Street Conduit Asset Backed Securitisation 1 Ltd Following Amendments

DBRS Ratings Limited (DBRS) assigned ratings to the newly issued Class A1 and Class A2 Notes (together, the Class A Notes), Class B Notes, and Class C Notes issued by Charles Street Conduit Asset Backed Securitisation 1 Limited (the Issuer, or CABS1) as follows:

-- Class A Notes assigned a rating of AA (sf)
-- Class B Notes assigned a rating of BBB (high) (sf)
-- Class C Notes assigned a rating of BB (high) (sf)

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal at the final maturity date. DBRS also discontinued the rating on the Senior Variable Funding Notes (VFN). Prior to the discontinuation, the rating of the Senior VFN was AA (sf) with an outstanding balance of GBP 910,800,000 as of the payment date on 7 September 2018.

The rating actions follow amendments to the transaction, which took place on 13 September 2018 (the 2018 Amendment Date). The Class A1 Notes and Class A2 Notes are pro rata pari passu and interchangeable following switches. The Senior VFN was replaced and re-designated as the Class A2 Notes. In addition, the Class A1, Class B and Class C Notes were issued on the 2018 Amendment Date. The Class A1, Class B and Class C Notes were listed and cleared via clearing systems, while the Class A2 Notes remain in the form of an VFN.

Subordination of the Notes continues to be provided by the Subordinated Notes and is determined by the Required Level, based on the Class A, B or C Advance Rate subject to outstanding notes. The portfolio covenants have been amended and commercial mortgage products are no longer eligible to be purchased by the Issuer. The transaction includes a 48-month revolving period from the 2018 Amendment Date.

The ratings are based upon a review by DBRS of the following analytical considerations:
-- Transaction capital structure and sufficiency of credit enhancement in the form of excess spread.
-- Relevant credit enhancement in the form of subordination and reserve funds available from the 2018 Amendment Date.
-- Credit enhancement levels are sufficient to support the expected cumulative net loss assumption projected under various stress scenarios at the AA (sf), BBB (high) (sf) and BB (high) (sf) rating levels, respectively, for the Class A Notes, Class B Notes, and the Class C Notes.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- Together Financial Services Limited and its subsidiaries’ experience as an originator underwriter and servicer as well as its financial strength.
-- The credit quality of the underlying collateral and the ability of the servicer to perform collection activities on the collateral. DBRS conducted an operational risk review on Together Financial Services Limited and deems Together Financial Services Limited to be an acceptable servicer.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria of European Structured Finance Transactions” methodology and presence of legal opinions addressing the assignment of the assets to the Issuer.

For further details of the amendments including the amended transaction structure, the operational risk analysis, the collateral historical performance, the collateral analysis, the cash flow analysis, and the rating considerations, please refer to DBRS’s Rating Report on the amendment under the Related Documents link below.

Notes:
All figures are in British pound sterling 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

In DBRS’s opinion, a discontinued-repaid rating action does not warrant the application of the entire principal methodology, as the bond has been repaid in full.

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 this rating action include the historical performance data, the amended transaction legal documents and the monthly investor reports provided by Together Financial Services 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 not 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 this rating 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 23 February 2018, when DBRS confirmed the rating on the Senior VFN at AA (sf).

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 simulated portfolio with 62% LTV are 7.9% and 39.5%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 27.2% and 80.9%, respectively. At the BBB (high) (sf) rating level, the corresponding PD and LGD are 18.4% and 77.4%, respectively. At the BB (high) (sf) rating level, the corresponding PD and LGD are 12.7% and 65.7%, 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 to 100%, the rating on the Class A Notes would be expected to be at A (low) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at BBB (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to be at BB (high) (sf).

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

Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (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 (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 BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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: Kevin Ma, Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 28 October 2014

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
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum
-- 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.