DBRS Morningstar Finalises Provisional Rating on Bastion 2021-1 NHG B.V.

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional rating of AAA (sf) on the Class A notes issued by Bastion 2021-1 NHG B.V. (the Issuer). The notes are collateralised by a portfolio of Dutch residential mortgage loans sold by MeDirect Bank NV/SA (the Seller) and granted by HollandWoont B.V. (the Originator) in the Netherlands. The Nationale Hypotheek Garantie backs all the loans in the portfolio.

The Originator is part of a platform provided by Dutch Mortgage Portfolio Management BV (Blauwtrust Groep), enabling the Seller, and other investors, to invest in Dutch residential mortgage loans.

The Issuer issued two tranches of mortgage-backed securities (Class A and Class B notes) to finance the purchase of Dutch residential mortgage loans secured over properties located in the Netherlands. Additionally, it issued Class C notes, which are noncollateralised and whose proceeds will be used to fund the Reserve Fund.

The rating addresses the timely payment of interest and the Issuer’s obligation to repay principal on the Class A notes by the legal final maturity date in August 2058. DBRS Morningstar does not rate the Class B or the Class C notes. The coupon on the Class A notes will be three-month Euribor plus 0.70% until the payment date of August 2026, and plus 1.05% afterwards.

Credit support to the Class A notes is sized at 10.5% and is provided by subordination of the Class B notes and a nonamortising Reserve Fund. The Reserve Fund was funded at 1.0% of the Class A and Class B notes’ initial balance.

Further liquidity support for the Class A notes is provided through a Cash Advance Facility, along with a priority of payments allowing principal to be borrowed to support revenue items with a corresponding debit to the appropriate principal deficiency ledger. The Cash Advance Facility will amortise, with no performance conditions attached. It is sized at 1.5% of the Class A notes’ outstanding balance with a floor of 1.0% of the Class A notes’ initial balance. The Cash Advance Facility is a 364-day renewable facility and if it is not renewed it will be drawn by the Issuer.

As of 31 December 2020, the portfolio consisted of 3,891 loan parts granted to 1,993 borrowers with an aggregate principal balance of EUR 414 million. The weighted-average (WA) seasoning of the portfolio was 0.5 years with a WA residual maturity of 28.8 years. The WA loan-to-value of the portfolio was 89.6%. The mortgage loans in the asset portfolio are all classified as owner-occupied and are secured by a first-ranking mortgage right. The portfolio contains 12.3% interest-only loans, and 3.9% of the loans were granted to self-employed borrowers. As of the cut-off date, all mortgage loans were performing.

All loans pay a fixed rate of interest with the most common reset frequencies being 10, 20 and 30 years. In comparison, the Class A notes pay an interest rate linked to three-month Euribor, which resets on a quarterly basis. The Issuer’s interest rate risk exposure is hedged through a total return swap agreement with Coöperatieve Rabobank U.A. Based on its rating and on the collateral posting provisions included in the documentation, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with its “Derivative Criteria for European Structured Finance Transactions” methodology.

Further advances are allowed only until August 2026, and are subject to certain annual quantitative limits. Furthermore, the sale of further advance receivables is subject to certain conditions, as well as the general pool eligibility criteria, limiting the deterioration of the pool quality. DBRS Morningstar has reviewed these conditions and has considered them in its analysis.

In case further advances are granted beyond these limits, the Seller has undertaken to repurchase the relevant loans, paying a price at least equal to outstanding principal and accrued interest. If the Seller does not comply with this obligation, the Issuer has the option to sell the relevant loans at market value to other investors in the Originator platform: in this case the Issuer may suffer a loss (Market Value Shortfall Amount), which will result in a debit to the Principal Deficiency Ledger and can be covered via excess spread, if available, as per the transaction priority of payments. The maximum Market Value Shortfall Amount is defined in the transaction documents as 3.38% of the initial pool balance: the loans can't be sold at a loss once the cumulative Market Value Shortfall Amount has exceeded this level.

The Issuer account bank is BNG Bank N.V. Based on the account bank’s private ratings and the replacement provisions included in the transaction documents, DBRS Morningstar considers the risk of such counterparty to be consistent with the ratings assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

The Originator serviced and originated the mortgages, with Quion Services B.V. acting as subservicer.

DBRS Morningstar based its rating primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar calculated probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage portfolio, which are used as inputs into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight Methodology” and “European RMBS Insight: Dutch Addendum" methodologies.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the Terms and Conditions of the notes. The transaction structure was analysed using Intex Dealmaker.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.

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 finance transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus.

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 ratings of 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

DBRS Morningstar considered that the NHG guarantee backing the whole pool is a social factor (Social Impact of Product & Services) as outlined within the DBRS Morningstar framework – “DBRS Morningstar’s Approach to Environmental, Social and Governance Risk Factors in Credit Ratings”. DBRS Morningstar assumed reduced loss severity for the loans, which are backed by NHG guarantee as outlined in its “European RMBS Insight: Dutch Addendum” methodology . This is credit positive and affects the rating.
Please also refer to https://www.dbrsmorningstar.com/research/366268/nhg-a-dutch-loan-guarantee-program-that-is-both-socially-supportive-and-credit-positive for more details.

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 methodologies applicable to the rating are the “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Dutch Addendum” (13 March 2020).

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

Other methodologies referenced in this transaction 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 this rating include historical performance (static pool defaults data from 2010 to 2020, dynamic delinquencies data from 2012 to 2020, and dynamic prepayments data from 2010 to 2020) and loan-level data as at 31 December 2020, provided by ABN AMRO Bank N.V. and its representatives on behalf of MeDirect Bank NV/SA.

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

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 this rating 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.

This is the first rating action since the Initial Rating Date.

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

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

In respect of the Class A notes, the PD and LGD at the AAA (sf) stress scenario of 24.60% and 26.29%, respectively (which take into consideration the maximum Market Value Shortfall Amount), were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the PD, ceteris paribus, would not lead to a rating change;
-- 25% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase of the LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 8 January 2021

DBRS Ratings GmbH, Sucursal en España
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies

-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v. 5.0.0.1,
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Dutch Addendum (13 March 2020),
https://www.dbrsmorningstar.com/research/357926/european-rmbs-insight-dutch-addendum.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020),
https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- 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: http://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].