DBRS Confirms and Upgrades Ratings of Notes Issued by Three SapphireOne Transactions

DBRS Ratings Limited (DBRS) confirmed and upgraded its ratings of notes issued by three SapphireOne transactions as follows:

SapphireOne Mortgages FCT 2016-1 (Sapphire 1)
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (high) (sf) from AA (sf)
-- Class D upgraded to AA (sf) from A (high) (sf)
-- Class E upgraded to AA (low) (sf) from BBB (high) (sf)

SapphireOne Mortgages FCT 2016-2 (Sapphire 2)
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (high) (sf) from AA (sf)
-- Class D upgraded to AA (sf) from AA (low) (sf)
-- Class E upgraded to AA (low) (sf) from A (sf)

SapphireOne Mortgages FCT 2016-3 (Sapphire 3)
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to A (high) (sf) from A (sf)
-- Class D upgraded to BBB (high) (sf) from BBB (sf)
-- Class E confirmed at BBB (low)

The ratings of the notes in all three transactions address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The confirmations and upgrades follow an annual review of the transactions 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 for the remaining collateral pools.
-- The current credit enhancement (CE) available to the rated notes to cover the expected losses at their respective rating levels.

Sapphire 1, Sapphire 2 and Sapphire 3 closed in July 2016, November 2016 and December 2016, respectively. The three transactions are securitisations of French debt consolidation residential mortgage loans originated and serviced by My Money Bank S.A. (previously GE Money Bank S.C.A).

The majority of variable-rate mortgages in the portfolio fall under the Instalment Protection Mechanism, whereby the borrowers’ monthly instalments are protected from the full extent of interest rate rises which would otherwise lead to an increased instalment. The monthly instalment is re-calculated on an annual basis, with the amount of any increase linked to inflation. When interest rates are flat or declining, the monthly instalment amount will remain constant.

The transactions have unique structures under which interest and principal receipts are reallocated to Issuer revenue and principal funds, in order to enable the amortisation of the notes based on a schedule defined at transaction close.

Please refer to each transaction’s rating report on DBRS’s website at www.dbrs.com for further details on the reallocation of collections and the amortisation mechanism of the notes.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The asset portfolios are performing within DBRS’s expectations.

-- SAPPHIRE 1
As of 31 July 2018, loans more than 30 days and 90 days delinquent represented 2.9% and 1.2%, respectively, of the outstanding collateral balance. The outstanding defaults represented 3.4% of the outstanding collateral balance. DBRS updated the base case PD and LGD assumptions for the remaining collateral pool to 10.5% and 1.0%, respectively.

-- SAPPHIRE 2
As of 31 August 2018, loans more than 30 days and 90 days delinquent represented 2.5% and 1.2%, respectively, of the outstanding collateral balance. The outstanding defaults represented 2.9% of the outstanding collateral balance. DBRS updated the base case PD and LGD assumptions for the remaining collateral pool to 9.0% and 1.0%, respectively.

-- SAPPHIRE 3
As of 31 August 2018, loans more than 30 days and 90 days delinquent represented 2.8% and 1.3%, respectively, of the outstanding collateral balance. The outstanding defaults represented 3.1% of the outstanding collateral balance. DBRS updated the base case PD and LGD assumptions for the remaining collateral pool to 9.5% and 2.1%, respectively.
The base case PD assumption for Sapphire 1 is higher than Sapphire 2 and Sapphire 3 due to the relatively greater amount of loans in the pool that have been restructured. The base case LGD assumption for Sapphire 3 is higher as a result of the pool having a higher loan-to-value ratio than Sapphire 1 and Sapphire 2.

CREDIT ENHANCEMENT AND RESERVES

The CE available to all the rated notes has increased across all three transactions as the transactions deleverage. The sources of CE to each class of notes are the subordinated notes and the Non-Liquidity Reserve Fund portion of the Total Reserve Fund.

The Total Reserve Fund is split into two components, the Liquidity Reserve Fund and the Non-Liquidity Reserve Fund, which is available to cover senior fees, interest on the rated notes and principal on the rated notes (via the principal deficiency ledgers). Amounts released due to the amortisation of the Liquidity Reserve Fund in each transaction form part of the Non-Liquidity Reserve Fund, accelerating the increase in credit enhancement to each class of rated notes. The Total Reserve Funds are currently at their non-amortising target amount of EUR 21.3 million, 20.0 million and 17.8 million for Sapphire 1, Sapphire 2 and Sapphire 3, respectively.

For Sapphire 1, as of the August 2018 payment date, the CE available to Class A, B, C, D and E was 29.9%, 23.3%, 18.6%, 15.0% and 11.5%, respectively.

For Sapphire 2, as of the September 2018 payment date, the CE available to Class A, B, C, D and E was 27.9%, 22.2%, 17.6%, 14.4% and 11.6%, respectively.

For Sapphire 3, as of the September 2018 payment date, the CE available to Class A, B, C, D and E was 19.6%, 14.7%, 10.2%, 8.4% and 7.6%, respectively.

Société Générale, S.A. acts as the main account bank provider to all three transactions. Based on Société Générale, S.A.’s Account Bank reference rating of AA (low), being one notch below the DBRS Long-Term Critical Obligations Rating (COR) of AA, and the mitigants outlines in the transaction documents, DBRS considers the risk arising from the exposure to the account bank in all three transactions to be consistent with the ratings assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

BNP Paribas S.A. acts as the swap counterparty to the Sapphire 1 and Sapphire 3 transactions. BNP Paribas S.A.’s DBRS Long Term COR of AA (high) is above the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the Class A notes in both Sapphire 1 and Sapphire 3.

HSBC Bank PLC acts as the swap counterparty to Sapphire 2. HSBC Bank PLC’s DBRS Private Rating, is above the first rating threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A notes in Sapphire 2.

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 transactions in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 are loan-by-loan data from European DataWarehouse GmbH as well as investor reports provided by the Management Company, EuroTitrisation.

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 these transactions took place on 16 November 2017, when DBRS confirmed and upgraded the ratings of the notes in all three transactions.

The lead analyst responsibilities for all three transactions have been transferred to Nathan Levy.

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”):

-- With regard to each transaction, DBRS expected a base case PD and LGD for the remaining collateral 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.
-- For Sapphire 1, the base case PD and LGD assumptions for the collateral pool are 10.5% and 1.0%, respectively.
-- For Sapphire 2, the base case PD and LGD assumptions for the collateral pool are 9.0% and 1.0%, respectively.
-- For Sapphire 3, the base case PD and LGD assumptions for the collateral pool are 9.5% and 2.1%, 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 Sapphire 1 Class A would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on Sapphire 1 Class A 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 Sapphire 1 Class A would be expected to remain at AAA (sf).

Rating Sensitivities per transaction:

-- SAPPHIRE 1
Class A 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 B 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 C Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

-- SAPPHIRE 2
Class A 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 B 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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

-- SAPPHIRE 3
Class A 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 AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class B Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (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 BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (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 BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Nathan Levy, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director

Initial Rating Date Sapphire 1: 7 July 2016
Initial Rating Date Sapphire 2: 20 October 2016
Initial Rating Date Sapphire 3: 8 December 2016

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 these transactions can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology
-- 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.