DBRS Assigns Ratings to Roundstone Securities No.1 DAC

DBRS Ratings Limited (DBRS) assigned the following ratings to the notes issued by Roundstone Securities No.1 DAC (Roundstone Securities or the Issuer):

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

The Class Z and R notes are not rated.

Roundstone securities is a bankruptcy-remote special-purpose vehicle (SPV) incorporated in Ireland. The issued notes were used to fund the purchase of Irish residential mortgage loans originated by Bank of Scotland plc and secured over properties located in Ireland. Bank of Scotland sold the portfolio in May 2018 to Erimon Home Loans Ireland limited, a bankruptcy-remote SPV wholly owned by Barclays Bank plc.

As at 30 July 2018, the mortgage portfolio consisted of 15,868 loans with a total portfolio balance of approximately EUR 2.88 billion. The weighted-average (WA) loan-to-indexed value, as calculated by DBRS giving a limited credit-to-house price increase, is 68.7% with a WA seasoning of 11.8 years. Almost all the loans included in the portfolio (99.9%), are floating-rate loans linked either to the European Central Bank (ECB) rate or a variable rate linked to ECB rate. The notes pay a floating rate of interest linked to three-month Euribor. DBRS has accounted for this interest rate mismatch in its cash flow analysis. Approximately 19.6% of the portfolio is collateralised by buy-to-let properties. As at the cut-off date, approximately 2.8% of the loans are three months or more in arrears.

Credit enhancement for the Class A notes is calculated at 22.5% and is provided by the subordination of the Class B notes to the Class Z notes and the general reserve fund. Credit enhancement for the Class B notes is calculated at 17.0% and is provided by the subordination of the Class C notes to the Class Z notes and the general reserve fund. Credit enhancement for the Class C notes is calculated at 13.2% and is provided by the subordination of the Class D notes to the Class Z notes and the general reserve fund. Credit enhancement for the Class D notes is calculated at 11.0% and is provided by the subordination of the Class E notes, Class Z notes and the general reserve fund. Credit enhancement for the Class E notes is calculated at 7.2% and is provided by the subordination of the Class Z notes and the general reserve fund.

The transaction benefits from a cash reserve that is available to support the Class A to Class E notes. The cash reserve will be fully funded at close at 1.5% of the initial balance of the rated notes less the liquidity reserve fund. The liquidity reserve fund is sized at 1.5% of the Class A balance and provides liquidity support to cover revenue shortfalls on senior fees, Class X1 payment and interest on the Class A notes. The notes will additionally 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 debit is applied to the principal deficiency ledgers in reverse sequential order.

A key structural feature is the provisioning mechanism in the transaction, which is linked to the arrears status of a loan besides the usual provisioning based on losses. The degree of provisioning increases with the increase in number of months in arrears status of a loan. This is positive for the transaction as provisioning based on the arrears status will trap any excess spread much earlier for a loan, which may ultimately end up in foreclosure.

The Issuer Account Bank, Paying Agent and Cash Manager is Citibank, N.A., London 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 assigned to the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the final maturity date. The ratings assigned to the Class B to Class E notes address the ultimate payment of interest and principal. 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 the probability of default (PD), 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 rated notes according to the terms of the transaction documents. The transaction cash flows were analysed using PD and LGD outputs provided by the “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” methodology. 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 legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with 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 Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.

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

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 Barclays Bank plc.

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 the 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.

This rating concerns a newly issued financial instrument. This is the first DBRS rating 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 the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

In respect of the Class A notes, the PD and LGD at the AAA (sf) stress scenario of 27.8% and 62.6%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus would not lead to a downgrade from 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 not lead to a downgrade from 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 (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf)

In respect of the Class B notes, the PD and LGD at the AA (high) (sf) stress scenario of 24.8% and 53.6%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

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

In respect of the Class C notes, the PD and LGD at the AA (sf) stress scenario of 21.7% and 51.7%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

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

In respect of the Class D notes, the PD and LGD at the A (high) (sf) stress scenario of 18.7% and 47.9%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to A (low) (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 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 (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 BBB (low) (sf)

In respect of the Class E notes, the PD and LGD at the BBB (sf) stress scenario of 13.7% and 39.0%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

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 (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 (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (low) (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: Vito Natale, Senior Vice President, CFA, FRM
Initial Rating Date: 28 September 2018

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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
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators
--Interest Rate Stresses for European Structured Finance Transactions
--Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

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.