DBRS Confirms Ratings on Penates Funding NV/SA compartment Penates-6

DBRS Ratings GmbH (DBRS) confirmed its ratings on the Class A1 and Class A2 notes (together, the Class A Notes) issued by Penates Funding NV/SA compartment Penates-6 (Penates 6 or the Issuer) at AAA (sf).

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

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in May 2051.

Penates 6 is a static securitisation of EUR 4,770.8 million first-lien Belgium residential mortgages originated and serviced by Belfius Bank NV/SA (Belfius) or its legal predecessors. The transaction closed in May 2017.

PORTFOLIO PERFORMANCE
As of the April 2019 payment date, loans that were 30 to 60 days delinquent represented 0.03% of the outstanding principal balance while loans between 60 and 90 days delinquent were 0.01%. Gross cumulative defaults amounted to 0.05% of the original principal balance, of which 14.8% have been recovered.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and updated its base case PD and LGD assumptions on the outstanding portfolio to 1.2% and 13.4%, respectively.

CREDIT ENHANCEMENT
CE to the Class A Notes is provided by the subordination of the Class B Notes and the cash reserve. The Class A1 notes benefit from the subordination of the Class A2 notes as the principal funds are allocated sequentially. As of April 2019, CE to the Class A1 notes increased to 74.2%, up from 59.0% at closing, while CE to the Class A2 notes increased to 22.0% from 17.5%.

Penates 6 benefits from a non-amortising cash reserve funded through the issuance of the Class C notes, which is available to cover senior fees, expenses and the interest due on the Class A Notes. As the reserve is replenished after the Class A Notes’ principal deficiency ledger is credited in the interest priority of payments, it provides credit support to the Class A Notes. The cash reserve has remained at its target of EUR 30.0 million since closing. The transaction additionally benefits from a EUR 145.0 million liquidity facility provided by Belfius, equal to 2.9% of the initial Class A Notes balance. The issuer can draw on the liquidity facility to meet any shortfalls of senior fees or interest on the Class A Notes.

Belfius acts as the account bank and is the cap provider for the transaction. Based on the reference rating of Belfius at A (high), which is one notch below DBRS’s Long-Term Critical Obligations Rating of AA (low), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank 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. In its capacity as cap provider, the rating of Belfius is consistent with the first rating threshold as described in DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

Notes:
All figures are in 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 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 monthly investor and servicer reports provided by Belfius and loan-by-loan data provided by European DataWarehouse GmbH.

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

At the time of the initial ratings, 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 15 May 2018, when DBRS confirmed the ratings on the Class A1 and Class A2 Notes at AAA (sf).

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
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 ratings, DBRS considered the following stress scenarios as compared with the parameters used to determine the ratings (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 1.2% and 13.4%, 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 decrease to AA (high) (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 decrease to A (high) (sf).

Class A1 Notes 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 A2 Notes 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 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 (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 A (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 GmbH are subject to EU and US regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 May 2017

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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
-- 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.