DBRS Morningstar Takes Rating Actions on Three Fastnet Securities Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Fastnet Securities 10 Limited (Fastnet 10), Fastnet Securities 12 DAC (Fastnet 12), and Fastnet Securities 13 DAC (Fastnet 13):

Fastnet 10
-- Class A3 confirmed at AAA (sf)

Fastnet 12
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AAA (sf)
-- Class C confirmed at AA (high) (sf)

Fastnet 13
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AAA (sf)
-- Class C upgraded to AA (high) (sf) from AA (sf)
-- Class D upgraded to A (high) (sf) from A (sf)

Additionally, the AAA (sf) rating on the Class A2 notes issued by Fastnet 10 has been discontinued following its full redemption on the 10 August 2020 payment date.

The rating on the Class A3 notes of Fastnet 10 addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in August 2053.

The ratings on the Class A and Class B notes of Fastnet 12 address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in August 2056. The rating on the Class C notes of Fastnet 12 addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The ratings on the Class A, Class B, and Class C notes of Fastnet 13 address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in April 2057. The rating on the Class D notes of Fastnet 13 addresses the ultimate payment of interest and principal on or before the legal final maturity date.

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

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the most recent payment dates for each transaction;
-- Probability of default (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;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Fastnet 10, Fastnet 12, and Fastnet 13 are securitisations of residential mortgage loans secured by first-ranking liens on properties in the Republic of Ireland, originated and serviced by permanent tsb plc (PTSB). Fastnet 10 closed in November 2014 with an initial portfolio balance of EUR 2.07 billion; Fastnet 12 closed in October 2016 with an initial portfolio balance of EUR 562.0 million; Fastnet 13 closed in October 2017 with an initial portfolio balance of EUR 526.2 million.

PORTFOLIO PERFORMANCE
-- Fastnet 10: as of 31 August 2020, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.5% and 0.2% of the outstanding principal balance, respectively, while loans more than 90 days delinquent amounted to 1.5%. Loans currently in repossession totalled 0.5% of the outstanding principal balance. Cumulative realised losses to date have increased to 0.1% of the initial portfolio balance from 0.05% 12 months ago.

-- Fastnet 12: as of 31 August 2020, loans that were 30 to 60 days, 60 to 90 days, and more than 90 days delinquent each represented 0.2% of the outstanding principal balance. To date, there have been no repossessions or realised losses on the mortgage loans.

-- Fastnet 13: as of 31 August 2020, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.3% and 0.1% of the outstanding principal balance, respectively, while loans more than 90 days delinquent represented 0.4%. To date, there have been no repossessions or realised losses on the mortgage loans.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
-- For Fastnet 10, DBRS Morningstar updated its base case PD and LGD assumptions on the remaining receivables to 8.6% and 31.2%, respectively.
-- For Fastnet 12, the base case PD and LGD assumptions were updated to 4.4% and 14.5%, respectively.
-- For Fastnet 13, the base case PD and LGD assumptions were updated to 3.6% and 11.1%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the rated notes in the transactions is provided by the subordination of the respective junior obligations and the general reserve funds. The transactions continue to deleverage steadily, resulting in increased credit enhancement available to the rated notes.

As of the September 2020 payment date, credit enhancement to the remaining Class A3 notes in Fastnet 10 has increased to 70.8% from 43.1% 12 months ago.

As of the July 2020 payment date, credit enhancement to the Class A, Class B, and Class C notes in Fastnet 12 has increased to 40.1%, 30.0%, and 23.1%, respectively, from 32.0%, 23.8%, and 18.2%, respectively, 12 months ago.

As of the July 2020 payment date, credit enhancement to the Class A, Class B, Class C, and Class D notes in Fastnet 13 has increased to 44.1%, 32.9%, 21.6%, and 11.9%, respectively, from 29.8%, 22.0%, 14.3%, and 7.6%, respectively, 12 months ago.

The transactions benefit each from a general reserve fund and a liquidity reserve fund, funded through a subordinated loan granted at closing by PTSB, which respectively provide credit support and liquidity support to the transactions.

In Fastnet 10, the general reserve fund is nonamortising and as of the September 2020 payment date was at its target balance of EUR 41.4 million, equal to 3.0% of the outstanding portfolio balance. The liquidity reserve fund is amortising with a target balance equal to 2.5% of the aggregate outstanding Class A notes balance, and as of the September 2020 payment date was at its target balance of EUR 7.6 million. Releases from the liquidity reserve fund form part of the available principal proceeds used to amortise the notes.

In Fastnet 12, the general reserve fund is amortising with a target balance equal to 2.5% of the initial portfolio balance minus the liquidity reserve fund, and as of the July 2020 payment date was at its target balance of EUR 7.6 million. The liquidity reserve fund is amortising with a target balance equal to 2.5% of the outstanding rated notes balance, and as of the July 2020 payment date was at its target balance of EUR 6.5 million. The two reserve funds always equal EUR 14.1 million in aggregate.

In Fastnet 13, the general reserve fund is amortising with a target balance equal to 2.0% of the initial portfolio balance minus the liquidity reserve fund, and as of the July 2020 payment date was at its target balance of EUR 5.2 million. The liquidity reserve fund is amortising with a target balance equal to 2.0% of the outstanding rated notes balance, and as of the July 2020 payment date was at its target balance of EUR 5.4 million. The two reserve funds always equal EUR 10.5 million in aggregate.

Deutsche Bank AG, London branch (DB London) acts as the account bank for Fastnet 10, Elavon Financial Services DAC, UK branch (Elavon UK) acts as the account bank for Fastnet 12, while The Bank of New York Mellon, London branch (BNYM London) acts as the account bank for Fastnet 13. Based on the DBRS Morningstar private ratings of DB London and Elavon UK, the DBRS Morningstar public rating of BNYM London at AA (high), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risks arising from the exposures to the account banks to be consistent with the ratings assigned to the rated notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structures in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For these transactions, DBRS Morningstar increased the expected default rates for self-employed borrowers, assumed a moderate decline in residential property prices, and conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand high levels of payment holidays in the portfolio.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated RMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports provided by PTSB and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial ratings, 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 Fastnet 10 took place on 4 October 2019, when DBRS Morningstar confirmed the ratings of the Class A1 and Class A2 notes at AAA (sf), and upgraded the rating on the Class A3 notes to AAA (sf) from AA (high) (sf). The last rating action on Fastnet 12 took place on 4 October 2019, when DBRS Morningstar confirmed the rating on the Class A notes at AAA (sf), upgraded the rating on the Class B Notes to AAA (sf) from AA (high) (sf), and upgraded the rating on the Class C notes to AA (high) (sf) from AA (sf). The last rating action on Fastnet 13 took place on 21 October 2019, when DBRS Morningstar confirmed its rating on the Class A notes at AAA (sf), upgraded the rating on the Class B notes to AAA (sf) from AA (high) (sf), upgraded the rating on the Class C notes to AA (sf) from A (high) (sf), and upgraded the rating on the Class D notes to A (sf) from BBB (high) (sf).

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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.
-- For Fastnet 10, the base case PD and LGD assumptions for the remaining collateral pool are 8.6% and 31.2%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 31.1% and 66.1%, respectively.

-- For Fastnet 12, the base case PD and LGD assumptions for the remaining collateral pool are 4.4% and 14.5%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 27.4% and 49.0%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 24.2% and 39.0%, respectively.

-- For Fastnet 13, the base case PD and LGD assumptions for the remaining collateral pool are 3.6% and 11.1%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 26.5% and 50.1%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 23.0% and 39.4%, respectively. At the A (high) (sf) rating level, the corresponding PD and LGD are 16.1% and 33.1%, 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 Fastnet 10 Class A3 notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Fastnet 10 Class A3 notes would be expected to remain at AAA (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Fastnet 10 Class A3 notes would be expected to remain at AAA (sf).

Fastnet 10 Class A3 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)

Fastnet 12 Class A 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)

Fastnet 12 Class B 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 AA (high) (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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Fastnet 12 Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (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 AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Fastnet 13 Class A 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)

Fastnet 13 Class B 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)

Fastnet 13 Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (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 (high) (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 AA (sf)

Fastnet 13 Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (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 A (low) (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 BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Daniel Rakhamimov, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Fastnet 10 Initial Rating Date: 27 November 2014
Fastnet 12 Initial Rating Date: 15 September 2016
Fastnet 13 Initial Rating Date: 9 October 2017

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (22 April 2020),
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (21 September 2020) and European RMBS Credit Model v 1.0.0.0,
https://www.dbrsmorningstar.com/research/366958/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020), https://www.dbrsmorningstar.com/research/367292/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 https://www.dbrsmorningstar.com/research/278375.

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