DBRS Confirms Ratings of Notes Issued by Mespil 1 RMBS Designated Activity Company

DBRS Ratings Limited (DBRS) confirmed its ratings of the Class A2 and Class A3 notes (together, the Class A Notes) issued by Mespil 1 RMBS Designated Activity Company (Mespil 1) at AAA (sf).

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

The confirmations 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 losses on the remaining receivables.
-- The current credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Mespil 1 is a securitisation of Irish prime residential mortgages, originated and serviced by EBS d.a.c. and its wholly owned subsidiary Haven Mortgages Limited.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of 31 August 2018, loan receivables more than 90 days delinquent represented 5.7% of the outstanding portfolio balance, down from 6.1% one year prior. Over the same period, the total loans in arrears as a percentage of the outstanding portfolio balance decreased to 7.2% from 7.6%. DBRS updated its base case PD and LGD to 14.0% and 29.0%, respectively. The reductions in PD and LGD are driven by both the improved performance of the collateral pool and the continued recovery in Irish residential house prices, which have reduced loan-to-value ratios and expected loss severities.

CREDIT ENHANCEMENT AND RESERVES
As of the September 2018 payment date, the CE available to the rated notes was 50.2%, up from 26.0% at the initial rating date. The sources of CE for the notes consist of the Class Z Loan and a non-amortising reserve fund of EUR 10.0 million that is available to cover shortfalls in senior fees, interest and principal (via the principal deficiency ledger) on the Class A Notes. DBRS recognises that although both the Class A2 and Class A3 notes benefit from the same level of credit enhancement as they rank pro rata and pari passu in terms of deemed loss (debit of the principal deficiency ledger), the sequential repayment structure of the transaction before a note event of default affords additional credit protection to the Class A2 notes, as detailed in the risk sensitivity overview section of this press release.

BNP Paribas, Dublin Branch is the account bank provider in the transaction. Based on its DBRS private rating 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 A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:

All figures are 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 reports and loan-level data provided by EBS d.a.c. and European DataWarehouse GmbH.

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 this transaction took place on 25 October 2017, when DBRS confirmed its ratings on the Class A notes at AAA (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 rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base case PD and LGD for the 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 14.0% and 29.0%, 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 by 50%, the rating on the Class A2 notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A2 notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A2 notes would be expected to remain at AAA (sf).

Class A2 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 AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class A3 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 AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 22 February 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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- 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.