DBRS Confirms Ratings of Grand Canal Securities 2 DAC

DBRS Ratings Limited (DBRS) confirmed its ratings of the following classes of notes issued by Grand Canal Securities 2 DAC (the Issuer):

-- Class A at A (sf)
-- Class B at BBB (low) (sf)
-- Class C at BB (low) (sf)
-- Class D at B (low) (sf)

The rating on the Class A notes addresses timely payment of interest and ultimate payment of principal. The ratings on the Class B, Class C and Class D notes address the ultimate payment of interest and principal. The Class E, Class P and Class F notes are unrated. A deferral of interest on the Class B, Class C or Class D notes will not result in an event of default for the transaction, irrespective of the relative seniority of the concerned class of notes.

As of the October 2018 investor report, the principal amount outstanding of the Class A, Class B, Class C and Class D notes was equal to EUR 229 million, EUR 198.6 million, EUR 9.3 million, EUR 10 and EUR 11.9 million, respectively. The balance of the Class A notes has amortised by approximately 14% since issuance. The current aggregated transaction balance is equal to EUR 485.4 million.

As reported in the most recent semiannual servicer report, the actual cumulative gross collections accounted for EUR 34 million in the first 11-month period after closing. The servicer’s initial business plan as detailed in the servicing report assumed cumulative gross collections of EUR 49 million during the same period.

At issuance, DBRS estimated cumulative gross collections for the same 11-month period of EUR 23 million in the “A” scenario, of EUR 24 million in the BBB (low) scenario, of EUR 25 million in the BB (low) scenario and of EUR 27 million in the B (low) scenario, all lower than actual cumulative gross collections to date.

The transaction benefits from four reserve funds (RF): the Class A RF, the Class B RF, the Class C RF and the Class D RF. The Class A RF has an initial balance equal to 3.0% of the Class A notes and can amortise to 3.0% of the outstanding balance of the Class A notes. The Class B RF is funded to an initial balance of 7.0% of the outstanding balance of the Class B notes; it does not have a target balance. The Class C RF is funded to an initial balance of 12.0% of the outstanding balance of the Class C notes; it also does not have a target balance. The Class D RF is funded to an initial balance of 15.0% of the outstanding balance of the Class D notes; it does not have a target balance. Credits to the Class B, C and D reserves are made outside of the waterfall based on the proceeds of the interest rate cap allocated proportionately to the respective size of the Class B, C and D notes relative to the cap notional. As of October 2018, the Class A RF was EUR 6 million, the Class B RF was EUR 500 thousand, the Class C RF was EUR 969,000 and the Class D RF was EUR 1.3 million.

As of October 2018, all mortgages were located in Ireland, with the largest concentration (i.e., 16.34% of the pool balance) located in Dublin (at issuance, 20.4%). Servicing of the portfolio is undertaken by Mars Capital Finance Ireland DAC (MCF). Primary servicing was delegated to Acenden (Ireland) DAC (Acenden). Acenden has been delegated primary servicer for a transitional period expected to last approximately three months after which servicing will transfer to MCF. MCF is responsible for all master servicing activities. Intertrust Finance (Ireland) Limited is appointed as the back-up servicer facilitator.

The Issuer entered into an Interest Rate Cap Agreement with HSBC Bank plc and paid the interest rate cap fees in full on the closing date and in return will receive payments to the extent that one-month Euribor is above 0.5% for months 0 to 24 and 1% for months 25 to 60. The cap agreement will terminate on the payment date falling 60 months from closing, on which date the coupon cap on the notes becomes applicable. The coupon caps on the Class A, Class B, Class C and Class D notes are equal to 5.00%, 6.00%, 6.00% and 6.00%, respectively.

The ratings are based on DBRS’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, Mars Capital, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with HSBC Bank Plc and the transaction’s legal and structural features.
The transaction’s final maturity date is in December 2058.
Notes:

All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Non-Performing Loan Securitisations”.

DBRS has applied the principal methodology consistently.

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 Mars Capital Ireland Holdings DAC and its agents.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

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 30 November 2017, when DBRS finalised its ratings of the Class A, Class B, Class C and Class D Notes.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):

-- The expected principal and interest collection at A (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at BBB (low) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at BB (low) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at B (low) (sf) rating level, a 5% and 10% reduction in the expected collections.

-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class A notes to BBB (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class A notes to BB (sf).

-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class B notes to BB (low) (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class B notes to B (low) (sf).

-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class C notes to B (low) (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class C notes to below B (low) (sf).

-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class D notes to below B (low) (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class D notes to below B (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: Mattia Pauciullo, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 6 November 2017

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Rating European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- 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.