DBRS Morningstar Confirms Ratings on Belmont Green Funding 1 Limited

DBRS Ratings Limited (DBRS Morningstar) confirmed the following ratings of the Class A notes issued by Belmont Green Funding 1 Limited (the Issuer):

-- Class A1a confirmed at AAA (sf)
-- Class A2a confirmed at AAA (sf)
-- Class A1b confirmed at AA (sf)
-- Class A2b confirmed at AA (sf)
-- Class A1c confirmed at A (low) (sf)
-- Class A2c confirmed at A (low) (sf)

The ratings on the Class A1a and Class A2a notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in October 2063. The ratings on the Class A1b, Class A2b, Class A1c, and Class A2c notes address the ultimate payment of interest and principal on or before the legal final maturity date while junior, and timely payment of interest while the senior-most class outstanding. The ratings on the Class A notes do not address the senior notes excess consideration amount that Class A noteholders may receive from the December 2021 interest payment date onwards.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults and losses.
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- No draw-stop events have occurred.

Belmont Green Funding 1 Limited is a secured funding facility provided to the Issuer by NatWest Markets Plc for the purpose of purchasing residential mortgage loans originated by Belmont Green Finance Limited (BGFL) in the United Kingdom through its Vida Homeloans brand. The commitment period for the facility under the Class A notes is 24 months from the December 2018 amendment date with an option to extend for a further 24 months. All mortgages are sourced, or are to be sourced, through a network of intermediaries. BGFL is a specialist lender in the United Kingdom that offers a full suite of mortgage products: owner-occupied, buy-to-let (BTL), adverse credit and interest-only.

The Class A2 notes hold the initial commitment while the Class A1 notes may be issued at a future date. If issued, the proceeds of the Class A1 issuance will be applied to redeem the Class A2 notes. The proceeds of Class B issuances will be used to either purchase further mortgages or repay the subordinated loan. DBRS Morningstar does not rate the Class B notes or the subordinated loan.

PORTFOLIO PERFORMANCE
As of October 2019, there were no loans in the portfolio more than 30 days in arrears. The cumulative loss ratio was 0.0%.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions at 14.1% and 18.6%, respectively.

CREDIT ENHANCEMENT
The transaction is structured such that the Class A1a and A2a notes have the same credit enhancement and receive both principal and interest on a pro rata and pari passu basis. Similarly, the Class A1b and A2b notes have the same credit enhancement and receive both principal and interest on a pro rata and pari passu basis. The Class A1c and A2c notes have the same credit enhancement and receive both principal and interest on a pro rata and pari passu basis.

The facility is structured to permit a maximum advance rate of 90% for the Class A notes, which translates into a minimum level of credit enhancement for the Class A1c and A2c notes equal to 10.0%, provided by subordination of the subordinated loan and mezzanine Class B notes. The Class A1b and A2b notes benefit from a minimum subordination level of 17.0%, while the Class A1a and A2a notes benefit from a minimum subordination level of 21.75%.

The transaction benefits from a liquidity reserve fund, initially sized at 1.0% of the available commitment amount (GBP 3.0 million). As of the November 2019 interest payment date, the amount standing to the credit of the liquidity reserve fund is GBP 1.9 million.

Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, 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 ratings assigned to the Class A1a and A2a notes, as described in DBRS Morningstar's Legal Criteria for European Structured Finance Transactions Methodology.

NatWest Markets Plc acts as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Critical Obligations Rating of NatWest Markets Plc at ‘A’ is in line with the First Rating Threshold as described in DBRS Morningstar's Derivative Criteria for European Structured Finance Transactions Methodology.

DBRS Morningstar analysed the transaction structure 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.

An asset and a cash flow analysis were both 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 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 investor reports provided by Elavon and loan-level data provided by BGFL.

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 9 January 2019, when DBRS Morningstar discontinued its ratings on the original Class A1 and A2 notes, and assigned ratings of AAA (sf) to the Class A1a and A2a notes, AA (sf) to the Class A1b and A2b notes, and A (low) (sf) to the Class A1c and A2c notes, following a restructure of the transaction effective on 19 December 2018.

The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.

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 14.1% and 18.6%, 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 of the Class A1a and A2a notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A1a and A2a notes would be expected to fall to A (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A1a and A2a notes would be expected to fall to BBB (high) (sf).

Class A1a 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 (low) (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 A (low) (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 A2a 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 (low) (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 A (low) (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 A1b Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (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 (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 BBB (low) (sf)

Class A2b Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (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 (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 BBB (low) (sf)

Class A1c Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

Class A2c Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 October 2017

DBRS Ratings Limited
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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: UK Addendum
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- 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: 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].