Press Release

DBRS Confirms Provisional Ratings of 12 Tranches of the Nightingale Securities 2017-1 Limited Financial Guarantee

Structured Credit
November 15, 2018

DBRS Ratings Limited (DBRS) confirmed the provisional ratings of 12 tranches of an unexecuted, unfunded financial guarantee (the senior guarantee) regarding a portfolio consisting of loans to U.K-based small and medium-sized enterprises (SMEs) and income-producing real estate (IPRE) (the Nightingale Securities 2017-1 Limited portfolio) originated by National Westminster Bank plc and its affiliates, as follows:

-- GBP 3,322,449,145 Tranche A at AAA (sf)
-- GBP 191,807,000 Tranche B at AA (high) (sf)
-- GBP 52,311,000 Tranche C at AA (sf)
-- GBP 60,794,000 Tranche D at AA (low) (sf)
-- GBP 133,369,000 Tranche E at A (high) (sf)
-- GBP 32,989,000 Tranche F at A (sf)
-- GBP 78,702,000 Tranche G at A (low) (sf)
-- GBP 210,186,000 Tranche H at BBB (high) (sf)
-- GBP 33,931,000 Tranche I at BBB (sf)
-- GBP 44,771,000 Tranche J at BBB (low) (sf)
-- GBP 139,967,000 Tranche K at BB (high) (sf)
-- GBP 21,206,000 Tranche L at BB (sf)

The ratings confirmed by DBRS are expected to remain provisional until the moment the underlying agreements are executed. However, it is important to note that National Westminster Bank plc (the Beneficiary) may have no intention of executing the senior guarantee. DBRS will maintain and monitor the provisional ratings throughout the life of the transaction or while it continues to receive performance information.

Nightingale Securities 2017-1 Limited (the Issuer or SPV) is a bankruptcy-remote limited liability company incorporated under the laws of Jersey. The transaction is a synthetic balance sheet securitisation structured in the form of a financial guarantee. The loans in the reference portfolio were originated in the U.K. by the National Westminster Bank plc and its affiliates over their regular course of business.

As of June 2018, the guaranteed portfolio notional amount totalled GBP 4,712.7 million. The transaction consists of a junior financial guarantee relating to the credit risk transferred via a funded credit-linked note (CLN) and a senior unexecuted and unfunded financial guarantee, which defines the rated tranches. Under the junior financial guarantee, the Beneficiary has transferred the credit risk of the GBP 390.2 million (corresponding to the first 8.28% of the initial portfolio notional amount). Similarly, under the unexecuted senior financial guarantee agreement, the Beneficiary has transferred the remaining credit risk of the same portfolio to 100.0% from 8.28%. The Beneficiary is also holding an additional 20% of each reference obligation as risk retention. The total size of the portfolio including risk retention is GBP 5,890.9 million.

The ratings address the likelihood of a reduction to the respective tranche notional amount resulting from credit events within the reference portfolio within the ten-year credit protection period. The portfolio credit events covered by the guarantee are limited to failure to pay, bankruptcy and failure to pay (restructuring).

The confirmations follow an annual review of the transaction.

Based on the investor report, as of June 2018, there were no cumulative defaults, and the credit enhancement levels for each tranche remain the same as at closing.

The transaction has one year of the replenishment period left, during which National Westminster Bank plc can add new reference obligations or increase the notional amount of existing reference obligations. Any new additions or increases of notional on existing reference obligations need to comply with the eligibility criteria and replenishment criteria. However, if the replenishment criteria are in breach prior to a replenishment, the replenishment can be allowed if the covenants in breach are maintained or improved. The replenishment period may end early if either the default or loss balance exceed certain limits.

DBRS divided the analysis of the portfolio into three key sub-pools: SMEs, residential IPRE and commercial IPRE and applied the relevant asset methodology for each. For the SME sub-pool, DBRS applied the “Rating CLOs Backed by Loans to European SMEs” methodology. The residential IPRE sub-pool analysis was conducted in accordance with the “European RMBS Insight Methodology” and its U.K. Addendum. The asset analysis of the commercial IPRE sub-pool was conducted in line with the “European CMBS Rating and Surveillance Methodology” to determine expected stressed recovery rates. Given the granularity of the commercial IPRE sub-portfolio, DBRS relied on the historical performance data to determine a base case probability of default (PD).

DBRS considered the eligibility and replenishment criteria to determine a worst-case portfolio for the analysis of each of the sub-pools. To determine the overall portfolio default and loss assumptions, DBRS weighted its analysis of each sub-pool by its respective contributions to the total portfolio.

As of June 2018, the GBP 4,712 million notional portfolio consisted of loans to SMEs (55.1% by outstanding balance), commercial IPRE (31.5%) and residential IPRE (13.4%). The replenishment criteria allows between 54% and 60% for the SME portfolio, 30% and 33% for the commercial IPRE portfolio and 7% to 16% for the residential IPRE.

The eligibility criteria exclude, among other criteria, obligations that are either subordinated or in arrears as well as borrowers with an internal rating below a certain threshold. The replenishment criteria include portfolio-level limits, which include a maximum borrower group concentration of 0.3% applied for lower-risk borrowers, with higher-risk borrowers being subject to tighter caps. It also includes limits to the weighted-average internal PD, loan-to-value and weighted-average life for the overall portfolio as well as each sub-pool.

All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating CLOs Backed by Loans to European SMEs”.

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 documents have remained unchanged since the most recent rating actions.

Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria 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 at:

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:

The sources of data and information used for these ratings include the lead manager: The Royal Bank of Scotland plc (trading as NatWest Markets) and the Beneficiary: National Westminster 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 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 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 15 November 2017 when DBRS assigned provisional ratings to the 12 tranches of the Issuer.

The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on

To assess the impact of a change of 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):

-- Defaults Rate Used: Portfolio Default rate (ranging between 45.5% and 11.1% at the AAA (sf) to CCC (low) (sf) stress level), a 10% and 20% increase on the Portfolio Default rate used.
-- Recovery Rates Used: Base Case Recovery Rate (ranging between 35.2% and 71.2% at the AAA (sf) to CCC (low) (sf) stress level), a 10% and 20% decrease in the Base Case Recovery Rate.

DBRS concludes that:
-- A hypothetical increase of the Portfolio Default rate by 20%, ceteris paribus, could lead to a downgrade of the rated tranches by up to three notches.
-- A hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, could lead to a downgrade of the rated tranches by up to three notches.
-- A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% could lead to a downgrade of the rated tranches by up to three notches.

For further information on DBRS historic default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Francesco Amato, Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 November 2017

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The rating methodologies used in the analysis of this transaction can be found at:

-- Master European Structured Finance Surveillance Methodology
-- Rating CLOs Backed by Loans to European SMEs
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum
-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at:

For more information on this credit or on this industry, visit or contact us at [email protected].

On 17 November 2020, this press release was amended to reflect a change in the Tranche L balance.