DBRS Morningstar Confirms Ratings on Residential Mortgage Securities 31 Plc

DBRS Ratings Limited (DBRS Morningstar) confirmed the following ratings on the notes issued by Residential Mortgage Securities 31 Plc (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (high) (sf)
-- Class F1 Notes at B (sf)
-- Class X1 Notes at C (sf)

The ratings on the Class A to F1 Notes address the timely payment of interest, while each class of notes is senior-most outstanding, and the ultimate payment of principal on or before the legal final maturity date. The rating on the Class X1 Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

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, as of September 2019.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A to F1 Notes to cover the expected losses at their respective rating levels.

Residential Mortgage Securities 31 Plc is a securitisation consisting of seasoned UK non-conforming mortgages, both owner-occupied and buy-to-let. The mortgages were originated by various entities; including, Southern Pacific Mortgages Limited, Preferred Mortgages Limited, London Mortgage Company, Southern Pacific Personal Loans Limited, Alliance & Leicester and Amber Homeloans Limited. The portfolio is serviced by Kensington Mortgage Company Limited (KMC).

PORTFOLIO PERFORMANCE
As of September 2019, loans that were two- to three-months in arrears represented 5.4% of the outstanding portfolio balance, up from 4.2% in July 2018. Loans more than three months in arrears represented 20.0% of the outstanding portfolio, up from 18.8% in July 2018. The cumulative default ratio was 0.6%.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-level analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 32.6% and 13.8%, respectively.

CREDIT ENHANCEMENT AND RESERVES
As of the September 2019 payment date, credit enhancement to the Class A, Class B, Class C, Class D, Class E and Class F1 Notes was 29.8%, 25.6%, 21.0%, 16.6%, 10.8% and 7.8%, respectively, up from 27.1%, 23.4%, 19.1%, 15.1%, 9.9% and 7.1% at the DBRS Morningstar initial rating. Credit enhancement consists of subordination of the junior notes and a General Reserve Fund.

The Class X1 Notes are primarily intended to amortise using revenue funds. However, if excess spread is insufficient to fully redeem the Class X1 Notes when the Class F2 Notes are paid down, principal funds will be used to amortise the Class X1 Notes in priority to the Class F3 Notes.

The General Reserve Fund is currently funded to its target level of GBP 9.5 million, which is 3% of the initial Class A to F3 Notes balances). The General Reserve Fund is available to cover senior fees, interest shortfall on the Class A to Class E Notes and principal losses via the principal deficiency ledgers (PDL) on the Class A to Class E Notes. Once the Class E Notes have been fully redeemed, the General Reserve Fund will also become available to cover interest shortfall and principal losses via the PDLs on the Class F1 to F3 Notes. The target balance of the General Reserve Fund becomes zero once the Class F2 Notes are redeemed in full.

If the General Reserve falls below 1.5% of the outstanding Class A to F3 Notes, a Liquidity Reserve will be funded to 2.0% of the outstanding principal balance of the Class A Notes using principal receipts and will be available to cover senior fees and interest shortfall on the Class A Notes. The Liquidity Reserve balance is currently at its target of zero.

Citibank N.A., London Branch (Citibank) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Citibank, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

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

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”.

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

Wells Fargo was replaced as the Delegate Cash Bond Administrator and Standby Cash Bond Administrator with Citibank and TMF Global Services (UK) Limited in June 2019 and October 2019, respectively. A review of the related transaction legal documentation was conducted. A review of the other 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include information, investor reports and loan-level data provided by Citibank N.A./London Branch and KMC.

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 supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

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 29 November 2018, when DBRS Morningstar finalised its provisional ratings of the Class A, Class B, Class C, Class D, Class E, Class F1 and Class X1 Notes at AAA (sf), AA (sf), A (sf), BBB (high) (sf), BB (high) (sf), B (sf) and C (sf), respectively.

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

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):

-- DBRS Morningstar 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 32.6% and 13.8%, 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 A Notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to fall 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 A Notes would be expected to fall to A (low) (sf).

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

Class B Notes 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 (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (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 A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

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

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

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf)

Class F1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating below B (sf)
-- 50% increase in LGD, expected rating below B (sf)
-- 25% increase in PD, expected rating below B (sf)
-- 50% increase in PD, expected rating below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf)

The ratings on the Class X1 Notes would not be affected by a change in either the PD or LGD.

For further information on DBRS Morningstar 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: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 12 November 2018

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
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: 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 Morningstar 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 [email protected].