Press Release

DBRS Morningstar Confirms Provisional Ratings of Nightingale Securities 2017-1 Limited

Structured Credit
November 15, 2019

DBRS Ratings Limited (DBRS Morningstar) confirmed the following provisional ratings of 12 tranches of the unexecuted, unfunded financial guarantee regarding the Nightingale Securities 2017-1 Limited (Nightingale 2017-1) portfolio:

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

The transaction is a synthetic balance-sheet collateralised loan obligation structured in the form of a financial guarantee (the Guarantee). The tranches are collateralised by a portfolio of term loans to small and medium-sized enterprises (SMEs) and loans backed by income-producing real estate (IPRE), comprising either commercial or residential properties (the Reference Portfolio), granted to borrowers in the United Kingdom and originated by National Westminster Bank plc (NatWest or the Beneficiary). The rated tranches are unfunded, and the senior guarantee remains unexecuted.

The ratings address the likelihood of a loss under the guarantee on the respective tranche resulting from borrower defaults at the legal final maturity date in November 2027. Borrower default events are limited to failure to pay, bankruptcy and restructuring events. The ratings assigned by DBRS Morningstar to each tranche are expected to remain provisional until the senior guarantee is executed. The ratings do not address counterparty risk nor the likelihood of any event of default or termination events under the agreement occurring.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of cumulative defaults, and compliance with replenishment criteria during the replenishment period as of the reporting date of August 2019;
-- Updated default rate, recovery rate and expected loss assumptions for the Reference Portfolio; and
-- The current available credit enhancement to the rated tranches to cover expected losses of each tranche at its respective rating level.

The transaction is currently at the end of its two-year replenishment period, during which time the Beneficiary was able to add new reference obligations provided that they meet eligibility criteria and replenishment criteria. The replenishment period ends on 15 November 2019.

As of the latest loan-by-loan data of August 2019, the Reference Portfolio stood at GBP 3,952 million, below the Maximum Reference Portfolio Amount of GBP 4,706 million. The Reference Portfolio is granular and composed mainly of secured obligations. Loans to SMEs and loans backed by commercial IPRE and residential IPRE respectively represent 56.7%, 28.3% and 15.1% of the Reference Portfolio’s outstanding balance, which are within the limits prescribed by the replenishment criteria. As of August 2019, the two triggers that end the replenishment period have not been breached.

As of the latest investor report of June 2019, delinquencies were low with loans that are one- to two-months in arrears representing 0.1% of the Reference Portfolio’s outstanding balance and two-to three-months in arrears representing 0.2%. Overall, delinquent loans represented 0.7% of the Reference Portfolio’s outstanding balance at that time.

As of August 2019, the transaction has recorded defaults leading to a reduction of the Guarantee amount to GBP 389 million from GBP 390 million. The cumulative defaulted amount represented 0.2% of the Reference Portfolio’s initial amount.

DBRS Morningstar divided its analysis of the Reference Portfolio into three key sub-pools consisting of loans to SMEs, loans backed by commercial IPRE and loans backed by residential IPRE.

For the SME sub-pool, the main methodology applied was the “Rating CLOs Backed by Loans to European SMEs” methodology. 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-pool, DBRS Morningstar relied on historical performance data to determine a base case probability of default (PD). Analysis of the residential IPRE sub-pool was conducted in accordance with the “European RMBS Insight Methodology” and its U.K. Addendum.

To determine a worst-case portfolio for the analysis of each of the sub-pools, DBRS Morningstar considered the eligibility and replenishment criteria, including among others, covenants with regard to borrower concentration, DBRS Industry classification, weighted-average life, weighted-average current loan-to-value and interest coverage ratio. To determine the overall portfolio default and loss assumptions, DBRS Morningstar weighted its analysis of each sub-pool by the worst-case composition of the portfolio in the three sub-pools.

The credit enhancement level of each tranche has decreased since closing, given that losses have been recorded. Despite this decrease, the current credit enhancement level of each tranche is sufficient to withstand the losses at its respective rating level.

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 Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset analysis was conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 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 “Global Methodology for Rating Sovereign Governments” at:

The sources of data and information used for these ratings include information provided by NatWest.

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

At the time of the initial rating, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar 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 2018, when DBRS Morningstar confirmed the provisional ratings of Nightingale 2017-1.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Default Rate Used: Portfolio Default Rate (ranging between 44.6% and 6.5% at the AAA (sf) to CCC (low) (sf) stress level), a 10% and 20% increase in the Portfolio Default Rate.
-- Recovery Rates Used: Recovery Rate (ranging between 34.6% and % at the AAA (sf) to 71.0% CCC (low) (sf) stress level), a 10% and 20% decrease in the Recovery Rate.

DBRS Morningstar concludes that a hypothetical increase of the Portfolio Default Rate by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would both 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% would lead to a downgrade of the rated tranches by up to three notches.

For further information on DBRS Morningstar historical 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: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 November 2017

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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

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

A description of how DBRS Morningstar 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

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