DBRS Morningstar Confirms Ratings on Two Fastnet Securities Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings of the notes issued by Fastnet Securities 6 Limited (Fastnet 6) and Fastnet Securities 11 Designated Activity Company (Fastnet 11), as follows:

Fastnet 6:
-- Class A3 confirmed at AAA (sf)

Fastnet 11:
-- Class A2 confirmed at AAA (sf)
-- Class A3 confirmed at AAA (sf)

The ratings address the timely payment of interest and the ultimate payment of principal on or before the legal
final maturity date in December 2050 for Fastnet 6 and August 2056 for Fastnet 11.

The confirmations 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 December 2020 payment date;
-- 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 the AAA (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

Fastnet 6 and Fastnet 11 are securitisations of Irish first-lien residential mortgages originated and serviced by permanent tsb p.l.c. (PTSB). Fastnet 6 closed in November 2008 with an initial portfolio balance of EUR 2.40 billion. Fastnet 11 closed in March 2016 with an initial portfolio balance of EUR 2.02 billion, and additional assets in the amount of EUR 0.89 billion purchased on the first payment date in April 2016.

PORTFOLIO PERFORMANCE
-- Fastnet 6: as of the December 2020 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.4% and 0.3% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent represented 1.5%. Loans currently in repossession totalled 0.9% of the outstanding portfolio balance. The cumulative realised losses have increased to 0.37% from 0.19% at the time of the last annual review 12 months ago.

-- Fastnet 11: as of the December 2020 payment date, loans that were 30 to 60 days and 60 to 90 days delinquent represented 0.3% and 0.1% of the outstanding portfolio balance, respectively, while loans more than 90 days delinquent represented 0.5%. The cumulative realised losses have amounted to 0.03%, in line with 0.02% at the time of the last annual review 12 months ago.

PORTFOLIO ASSUMPTIONS AND KEY RATING DRIVERS
For Fastnet 6, DBRS Morningstar updated its base case PD and LGD assumptions on the remaining receivables to 10.1% and 28.8%, respectively. For Fastnet 11, the base case PD and LGD assumptions were updated to 4.8% and 27.5%, respectively.

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

As of the December 2020 payment date, credit enhancement to the Class A3 notes in Fastnet 6 has increased to 92.2% from 74.9% at the time of the last annual review 12 months ago. Credit enhancement to the Class A2 and Class A3 notes in Fastnet 11 has increased to 76.4% and 42.2% from 55.7% and 30.5% at the time of the last annual review 12 months ago, respectively.

Both transactions benefit from a nonamortising general reserve fund, providing credit support to the rated notes. In Fastnet 6, the reserve is equal to its target level of EUR 26.4 million, while in Fastnet 11 the reserve is equal to its target level of EUR 58.2 million. Fastnet 11 additionally benefits from an amortising liquidity reserve fund with a target balance equal to 2.5% of the outstanding rated notes balance, currently at its target of EUR 20.4 million.

BNP Paribas Securities Services, London Branch (BNPSS) acts as the account bank for Fastnet 6, while the Bank of New York Mellon, London Branch (BNYM) acts as the account bank for Fastnet 11. Based on the DBRS Morningstar private rating of BNPSS and public rating of BNYM at AA (high), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure 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 structure 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 continue to increase 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 rate 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 portfolios. As of 30 November 2020, only 1.3% of the Fastnet 6 portfolio and 1.1% of the Fastnet 11 portfolio were under payment moratoriums.

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 2 December 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-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 transaction 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 and servicer reports provided by PTSB and loan-level information 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 was supplied with third-party assessments. For Fastnet 6, the third-party assessments were as of the closing date. 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 actions on these transactions took place on 10 January 2020, when DBRS Morningstar confirmed the rating on the Class A3 notes of Fastnet 6 at AAA (sf), confirmed the ratings on the Class A1 and Class A2 notes of Fastnet 11 at AAA (sf), and upgraded the rating on the Class A3 notes in Fastnet 11 to AAA (sf) from AA (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 6, the base case PD and LGD assumptions for the remaining collateral pool are 10.1% and 28.8%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 32.6% and 64.5%, respectively.

-- For Fastnet 11, the base case PD and LGD assumptions for the remaining collateral pool are 4.8% and 27.5%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 27.5% and 58.3%, 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 6 Class A3 notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Fastnet 6 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 6 Class A3 notes would be expected to remain at AAA (sf).

Fastnet 6 Class A3 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 11 Class A2 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 11 Class A3 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)

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: David Lautier, Senior Vice President
Fastnet 6 Initial Rating Date: 21 January 2015
Fastnet 11 Initial Rating Date: 24 March 2016

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
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 (19 November 2020), https://www.dbrsmorningstar.com/research/370270/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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].