DBRS Assigns Provisional Ratings to Dublin Bay Securities 2018-MA1 DAC

DBRS Ratings Limited (DBRS) assigned provisional ratings to the following notes to be issued by Dublin Bay Securities 2018-MA1 DAC (DBS 2018-MA1 or the Issuer):

-- Class A1 notes rated AAA (sf)
-- Class A2A notes rated AAA (sf)
-- Class A2B notes rated AAA (sf)
-- Class S notes rated AAA (sf)
-- Class B notes rated AA (low) (sf)
-- Class C notes rated A (high) (sf)
-- Class D notes rated A (low) (sf)
-- Class E notes rated BBB (sf)
-- Class F notes rated B (high) (sf)
-- Class Z1 notes rated B (low) (sf)

The Class Z2 and R notes are not rated.

DBS 2018-MA1 is a bankruptcy-remote special-purpose vehicle (SPV) incorporated in Ireland. The issued notes will be 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 September 2018 to Erimon Home Loans Ireland limited, a bankruptcy-remote SPV wholly owned by Barclays Bank plc.

As at 31 July 2018, the provisional mortgage portfolio consisted of 2,187 loans with a total portfolio balance of approximately EUR 381.7 million. The weighted-average (WA) loan-to-indexed value, as calculated by DBRS giving limited credit to house price increase, is 66.0% with a WA seasoning of 11.9 years. Almost all the loans in the portfolio (99.9% by loan amount), are floating-rate loans linked either to the European Central Bank (ECB) rate or a variable rate linked to the 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. No loans have been originated to buy-to-let borrowers, nor does the provisional portfolio include loans in arrears.

Credit enhancement for the Class A1, A2A and A2B notes (together, the Class A2 notes, and together with Class A1, the Class A notes) is calculated at 23.0% and is provided by the subordination of Classes B through Z and the liquidity reserve fund. Credit enhancement for the Class B notes is calculated at 18.75% and is provided by the subordination of the Class C notes to the Class Z notes. Credit enhancement for the Class C notes is calculated at 16.0% and is provided by the subordination of the Class D notes to the Class Z notes. Credit enhancement for the Class D notes is calculated at 12.75% and is provided by the subordination of the Class E Class F and Class Z notes. Credit enhancement for the Class E notes is calculated at 10.5% and is provided by the subordination of the Class F and Class Z notes. Credit enhancement for the Class F notes is calculated at 8.25% and is provided by the subordination of the Class Z notes. Class S notes are redeemed under the pre-enforcement revenue priority of payments, but principal receipts can be used to cure shortfalls in the required payments for Class S.

The Class A2 notes will repay according to a pre-determined amortisation schedule, which can be revised downwards if they receive more than the scheduled payments, whereas Class A1 notes are entitled to receive from the excess to the scheduled payment of the Class A2 notes. The Class A1, A2 and S notes rank senior and are pari passu.

The transaction has been structured to try to ensure that in the event that principal receipts from the mortgage loans are higher or lower than expected, the Class A2 notes receive the Class A2 scheduled payment. If principal receipts are higher than expected, when Class A1 has been fully redeemed and the amortisation reserve is fully funded, Class A2 principal payments will accelerate over the schedule. If principal receipts are lower than expected, the principal payment on the other classes will reduce. If no principal is to be paid on the other classes, an amortisation reserve is available to cover deficits on Class A2, together with the option of an extraordinary payment from Class Z2 noteholders.

The Issuer will establish a protected amortisation reserve fund, which will not be funded at closing. On each interest payment date, the reserve can be funded from Available Principal Receipts up to a maximum of 2% of the outstanding balance of the collateralised notes at closing. The protected amortisation reserve fund will support payments for the class A2 notes to ensure that the scheduled payments are met.

The liquidity reserve fund is sized at 1.25% of the Class A balance and provides liquidity support to cover revenue shortfalls on senior fees and interest on the Class A and S notes. The notes will additionally be provided with liquidity support from principal receipts, which can be used to cover interest shortfalls on all the rated notes subject to no PDL outstanding on the relevant mezzanine class, consequently 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— and to the repayment type of the loan in case of a maturity extension. The degree of provisioning increases the longer a loan is in arrears, or the longer the maturity is extended for Interest Only loans. Loans with capitalised arrears will be considered in arrears unless the loan is able to demonstrate six months of clean performance. 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. Based on the DBRS private rating of the Issuer Account Bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to the Issuer Account Bank to be consistent with the ratings assigned to the Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

The provisional ratings assigned to the Class A and Class S notes address the timely payment of interest and ultimate payment of principal on or before the final maturity date. The provisional ratings assigned to the Class B to Class Z1 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 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 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 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 26.76% and 60.36%, 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 lead to a downgrade to AA (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to AA (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA high (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 (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (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 (low) (sf)

In respect of the Class S notes, the PD and LGD at the AAA (sf) stress scenario of 26.76% and 60.36%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

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

In respect of the Class B notes, the PD and LGD at the AA (low) (sf) stress scenario of 17.74% and 47.52%, 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 not lead to a downgrade of the notes
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to A (sf)
-- 25% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 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 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)

In respect of the Class C notes, the PD and LGD at the A (high) (sf) stress scenario of 16.04% and 45.33%, 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 (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 (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (low) (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 (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 (low) (sf) stress scenario of 13.70% and 42.08%, 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 BBB (high) (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to BBB (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (high) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade BBB (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to BBB (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 (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to BB (high) (sf)

In respect of the Class E notes, the PD and LGD at the BBB (sf) stress scenario of 10.58% and 36.36%, 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 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)

In respect of the Class F notes, the PD and LGD at the B (high) (sf) stress scenario of 4.01% and 23.80%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class F notes:
-- 25% increase of the PD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the PD, ceteris paribus would not lead to a downgrade of the notes
-- 25% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would not lead to a downgrade of the notes

In respect of the Class Z1 notes, the PD and LGD at the B (low) (sf) stress scenario of 6.76% and 29.09%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS concludes the following impact on the Class Z1 notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to C (sf)
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to C (sf)
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to B (low) (sf)
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to C (sf)
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to C (sf)
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to C (sf)
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to C (sf)
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to C (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: 22 October 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.