DBRS Morningstar Assigns Provisional Ratings to Eagle Re 2020-1 Ltd.

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Mortgage Insurance-Linked Notes, Series 2020-1 (the Notes) to be issued by Eagle Re 2020-1 Ltd. (EMIR 2020-1 or the Issuer):

-- $83.9 million Class M-1A at BBB (low) (sf)
-- $133.2 million Class M-1B at BB (high) (sf)
-- $88.8 million Class M-1C at BB (low) (sf)
-- $157.9 million Class M-2 at B (low) (sf)
-- $52.6 million Class M-2A at B (high) (sf)
-- $52.6 million Class M-2B at B (sf)
-- $52.6 million Class M-2C at B (low) (sf)
-- $24.7 million Class B-1 at B (low) (sf)

The BBB (low) (sf), BB (high) (sf), BB (low) (sf), B (high) (sf), B (sf), and B (low) (sf) ratings reflect 6.15%, 4.80%, 3.90%, 3.37%, 2.83%, and 2.05% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

EMIR 2020-1 is Radian Guaranty Inc.’s (Radian Guaranty or the ceding insurer) third rated mortgage insurance (MI)-linked note transaction. The Notes are backed by reinsurance premiums, eligible investments, and related account investment earnings, in each case relating to a pool of MI policies linked to residential loans. The Notes are exposed to the risk arising from losses paid by the ceding insurer to settle claims on the underlying MI policies. As of the Cutoff Date, the pool of insured mortgage loans consists of 156,065 fully amortizing first-lien fixed- and variable-rate mortgage loans, 100% underwritten to a full documentation standard with original loan-to-value ratios less than or equal to 97%, that have never been reported as 60 or more days delinquent. The mortgage loans were originated on or after October 2018 with the associated MI policies effective on or after January 2019.

On the Closing Date, the Issuer will enter into the Reinsurance Agreement with the ceding insurer. As per the agreement, the ceding insurer will get protection for the funded portion (100.0%) of the MI losses. In exchange for this protection, the ceding insurer will make premium payments related to the underlying insured mortgage loans to the Issuer.

The Issuer is expected to use the proceeds from the sale of the Notes to purchase certain eligible investments that will be held in the reinsurance trust account. The eligible investments are restricted to AAA- or equivalent-rated U.S. Treasury money-market funds and securities. Unlike other residential mortgage-backed security (RMBS) transactions, cash flow from the underlying loans will not be used to make any payments; rather, in MI-linked Notes transactions, a portion of the eligible investments held in the reinsurance trust account will be liquidated to make principal payments to the noteholders and to make loss payments to the ceding insurer when claims are settled with respect to the MI policy.

The Issuer will use the investment earnings on the eligible investments, together with the ceding insurer’s premium payments, to pay interest to the noteholders.

The calculation of principal payments to the Notes will be based on a reduction in aggregate exposed principal balance on the underlying MI policy. The subordinate notes will be allocated their pro rata share of available principal funds if performance tests are satisfied. The minimum credit enhancement test—one of the two performance tests—has been set to fail at the Closing Date, thus locking out the rated classes from initially receiving any principal payments until the senior credit enhancement percentage grows to 8.0% from 7.0%. Interest payments are funded via (1) premium payments that the ceding insurer must make under the reinsurance agreement and (2) earnings on eligible investments.

On the Closing Date, the ceding insurer will establish a cash and securities account, the premium deposit account, and deposit an amount that covers 70 days of interest payments to be made to the noteholders. The calculation of the initial deposit amount also takes into account any potential investment income that may be earned on eligible investments held in the trust account. In case of the ceding insurer’s default in paying coverage premium payments to the Issuer, the amount available in this account will be used to make interest payments to the noteholders. The presence of this account mitigates certain counterparty exposure that the trust has to the ceding insurer. On each payment date, if the amount available in the premium deposit account is less than the target premium amount, and the ceding insurer’s average financial strength rating is lower than the highest rating assigned to the Notes, then the ceding insurer must fund the premium deposit account up to its target amount. Please refer to the offering circular for more details.

The Notes are scheduled to mature on the payment date in January 2030 but will be subject to early redemption at the option of the ceding insurer, either (1) for a 10% clean-up call or (2) on or following the payment date in January 2027, among others. The Notes are also subject to mandatory redemption before the scheduled maturity date upon the termination of the Reinsurance Agreement.

The ceding insurer of the transaction is Radian Guaranty. The Bank of New York Mellon (rated AA (high) with a Stable trend by DBRS Morningstar) will act as the Indenture Trustee, Paying Agent, Note Registrar, and Reinsurance Trustee.

The ratings reflect transactional strengths that include the following:
-- Agency eligible loans
-- High-quality credit and loan attributes
-- MI termination
-- Well-diversified pool
-- Alignment of interest

The transaction also includes the following challenges:
-- Counterparty exposure
-- Representation and warranties framework
-- Limited third-party due diligence
-- Eligible investment losses

The full description of the strengths, challenges, and mitigating factors is detailed in the related report.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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