Press Release

DBRS Morningstar Confirms and Upgrades Provisional Ratings on Nightingale Securities 2017-1 Limited

Structured Credit
November 13, 2020

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

--GBP 1,790,610,752 Tranche A confirmed at AAA (sf)
--GBP 191,807,000 Tranche B upgraded to AAA (sf) from AA (high) (sf)
--GBP 52,311,000 Tranche C upgraded to AA (high) (sf) from AA (sf)
--GBP 60,794,000 Tranche D upgraded to AA (high) (sf) from AA (low) (sf)
--GBP 133,369,000 Tranche E upgraded to AA (sf) from A (high) (sf)
--GBP 32,989,000 Tranche F upgraded to AA (sf) from A (sf)
--GBP 78,702,000 Tranche G upgraded to AA (sf) from A (low) (sf)
--GBP 210,186,000 Tranche H upgraded to A (high) (sf) from BBB (high) (sf)
--GBP 33,931,000 Tranche I upgraded to A (sf) from BBB (sf)
--GBP 44,771,000 Tranche J upgraded to A (low) (sf) from BBB (low) (sf)
--GBP 139,967,000 Tranche K upgraded to BBB (low) (sf) from BB (high) (sf)
--GBP 21,206,000 Tranche L upgraded to BBB (low) (sf) from at BB (sf)

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 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-size 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 transaction’s replenishment period ended on 15 November 2019 and the portfolio has been amortising since.

The confirmation and upgrades follow an annual review of the transaction 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 2020;
-- Updated default rate (PD), recovery rate, and expected loss assumptions for the Reference Portfolio;
-- The current available credit enhancement to the rated tranches to cover expected losses of each tranche at its respective rating level; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

As of the latest loan-by-loan data of August 2020, the Reference Portfolio stood at GBP 3,179 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 59.9%, 26.5%, and 13.6% of the Reference Portfolio’s outstanding balance.

As of the latest investor report of June 2020, delinquencies were low with loans that are one- to two-months in arrears representing 0.2% of the Reference Portfolio’s outstanding balance, up from 0.1% a year ago; and loans two- to three-months in arrears representing 0.7%, up from 0.2% a year ago. Delinquent loans represented 1.4% of the Reference Portfolio’s outstanding balance as of end of August 2020, down from 3.1% as of end of June 2020.

As of August 2020, the transaction has recorded defaults leading to a reduction of the Guarantee amount to GBP 388 million from the initial balance of GBP 390 million. The cumulative defaulted amount represented 0.2% of the Reference Portfolio’s initial amount, stable since a year ago.

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

For the SME subpool, the main methodology applied was the “Rating CLOs Backed by Loans to European SMEs” methodology. The asset analysis of the commercial IPRE subpool 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 subpool, DBRS Morningstar relied on historical performance data to determine a base case probability of default. Analysis of the residential IPRE subpool was conducted in accordance with the “European RMBS Insight Methodology” and its UK Addendum.

DBRS Morningstar’s analysis was based on the current Reference Portfolio’s composition as opposed to a worst case a year ago, given that the replenishment ended. DBRS Morningstar conducted a review of the current Reference Portfolio and updated its base case PD and recovery rate assumptions to 11.4% and 64.1%. DBRS Morningstar’s updated assumptions include adjustments within the context of the coronavirus pandemic.

Credit enhancement (CE) in this transaction consists of the subordination of the junior tranches and takes into account the Maximum Reference Portfolio balance. As of August 2020, the CE increased as follows since a year ago:

--CE to the Tranche A increased to 43.7%, up from 29.5%;
--CE to the Tranche B Notes increased to 37.6%, up from 25.4%;
--CE to the Tranche C Notes increased to 36.0%, up from 24.3%;
--CE to the Tranche D Notes increased to 34.1%, up from 23.0%;
--CE to the Tranche E Notes increased to 29.9%, up from 20.2%;
--CE to the Tranche F Notes increased to 28.9%, up from 19.5%;
--CE to the Tranche G Notes increased to 26.4%, up from 17.8%;
--CE to the Tranche H Notes increased to 19.8%, up from 13.3%;
--CE to the Tranche I Notes increased to 18.7%, up from 12.6%;
--CE to the Tranche J Notes increased to 17.3%, up from 11.7%;
--CE to the Tranche K Notes increased to 12.9%, up from 8.7%; and
--CE to the Tranche L Notes increased to 12.2%, up from 8.3%.

The substantial increase in the CE compared with a year ago is due to the end of the replenishment period, where the amortisation of the portfolio reduces the tranches’ outstanding balance starting from the most senior one.

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 increase in the coming months for many Structured Credit 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 this transaction DBRS Morningstar applied a 1.5 or a 2.0 adjustment factor on the underlying one-year probability of defaults for obligors in mid-high or high risk industries in the SME and commercial IPRE subpools based on their perceived exposure to the adverse disruptions of the coronavirus: these represented 5.9% and 36.2% of the SME and commercial IPRE subpools outstanding balance, respectively. DBRS Morningstar also incorporated additional reductions in commercial property values and a moderate reduction in residential property values.

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: and The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

In May and June 2020, DBRS Morningstar published several commentaries outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated Structured Credit, CMBS, and RMBS transactions in Europe. For more details, please see the following commentaries:,,, and

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

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” (30 September 2020).

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

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 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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at:

The sources of data and information used for these ratings include loan-level data and investor reports 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 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 15 November 2019, when DBRS Morningstar confirmed the provisional ratings of Nightingale 2017-1.

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

To assess the impact of changing the transaction parameters on the ratings, 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 36.6% and 11.4% at the AAA (sf) to B (sf) stress level), a 10% and 20% increase in the Portfolio Default Rate.
-- Recovery Rates Used: Recovery Rate (ranging between 36.6% and 64.1% at the AAA (sf) to B (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 each lead to a confirmation of the rated tranches at their current rating levels. A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would lead to a confirmation of the rated tranches at their current rating levels.

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 U.S. regulations only.

Lead Analyst: Natalia Coman, Senior 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
Tel. +44 (0) 20 7855 6600
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 (30 September 2020) and Diversity Model v.,
-- Rating CLOs and CDOs of Large Corporate Credit (21 July 2020),
-- European RMBS Insight Methodology (2 April 2020),
-- European RMBS Insight: UK Addendum (9 October 2020) and European RMBS Insight Model v.,
--European CMBS Rating and Surveillance Methodology (13 December 2019),
--Master European Structured Finance Surveillance Methodology (22 April 2020),
--Legal Criteria for European Structured Finance Transactions (11 September 2019),
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),

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.