DBRS Takes Rating Actions on Towd Point Mortgage Funding 2016-Granite3 Plc

DBRS Ratings Limited (DBRS) took the following rating actions on the Notes issued by Towd Point Mortgage Funding 2016-Granite3 Plc (the Issuer):

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from AA (sf)
-- Class D Notes upgraded to AA (sf) from AA (low) (sf)
-- Class E Notes upgraded to AA (low) (sf) from A (high) (sf)
-- Class F Notes upgraded to AA (low) (sf) from A (low) (sf)

The ratings of the Class A Notes and Class B Notes address the timely payment of interest and ultimate repayment of principal on or before the legal final maturity date. The ratings of the Class C Notes, Class D Notes, Class E Notes and Class F Notes address the ultimate repayment of interest and principal on or before the legal final maturity date. The ratings do not address the payment of any Net WAC Additional Amounts.

The rating actions follow an annual review of the transaction and are based on the following considerations:
-- Portfolio performance, in terms of delinquencies and losses, as of the November 2018 payment date.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

The Issuer is a securitisation of UK unsecured consumer loans originated by Northern Rock Plc which were offered to the borrowers at the same time they took out a mortgage loan offered by the Originator. The loans were transferred to Northern Rock Asset Management plc, which was renamed Landmark Mortgages Limited (Landmark) after being acquired by Cerberus Capital Management LP. Cerberus European Residential Holdings B.V. acquired the portfolio of loans and sold it to Granite3 on the transaction closing date. Landmark is the servicer of the loan portfolio, with Computershare Mortgage Services Limited acting as the Delegated Servicer.

PORTFOLIO PERFORMANCE
At closing, there were loans already in arrears. The Class Z2 Notes balance represented the portion of the portfolio (8.34%) that was more than 12 months in arrears at closing. As of the November 2018 payment date, two- to three-month arrears represented 0.5% of the outstanding portfolio balance, stable since November 2017. The 90+ delinquency ratio was 13.4%, up from 12.5%. Cumulative losses as a percentage of the Initial Principal Balance are currently 7.96%, up from 3.67% a year ago.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 12.0% (excluding loans at least 12 months in arrears) and 99.2%, respectively.

CREDIT ENHANCEMENT
Credit enhancement is provided by subordination of the junior notes. DBRS excluded the balance of defaulted loans when calculating the CE. As of the November 2018 payment date, Class A CE was 70.7%, up from 43.2% at the DBRS initial rating; Class B CE was 58.4%, up from 35.5% at the DBRS initial rating; Class C CE was 53.1%, up from 32.3% at the DBRS initial rating; Class D CE was 46.1%, up from 27.9% at the DBRS initial rating; Class E CE was 41.7%, up from 25.2% at the DBRS initial rating; and Class F CE was 37.9%, up from 22.4% at the DBRS initial rating.

Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS private rating of Elavon, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to Elavon to be consistent with the ratings assigned to the Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is: “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 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/333487/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include investor reports provided by U.S. Bank Trustees Limited and loan-level data provided by Euro ABS.

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 14 December 2017, when DBRS confirmed the rating of the Class A Notes at AAA (sf) and upgraded the ratings of the Class B, Class C, Class D, Class E and Class F Notes to AA (high) (sf), AA (sf), AA (low) (sf), A (high) (sf) and A (low) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

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 of the current pool of loans for the Issuer are 12.0% and 99.2%, 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 to 100%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if the PD increases by 50% and the LGD increases to 100%, the rating of the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- LGD increases to 100%, 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 LGD increases to 100%, expected rating of AAA (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- LGD increases to 100%, 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 LGD increases to 100%, expected rating of AAA (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of AA (high) (sf)

Class C Notes Risk Sensitivity:
-- LGD increases to 100%, 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 LGD increases to 100%, expected rating of AA (high) (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of AA (high) (sf)

Class D Notes Risk Sensitivity:
-- LGD increases to 100%, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and LGD increases to 100%, expected rating of AA (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of AA (low) (sf)

Class E Notes Risk Sensitivity:
-- LGD increases to 100%, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and LGD increases to 100%, expected rating of AA (low) (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of A (high) (sf)

Class F Notes Risk Sensitivity:
-- LGD increases to 100%, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and LGD increases to 100%, expected rating of A (high) (sf)
-- 50% increase in PD and LGD increases to 100%, expected rating of BBB (high) (sf)

For further information on DBRS historic 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: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 December 2016

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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.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum
-- 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.