DBRS Morningstar Finalises Provisional Ratings on Glenbeigh 2 Issuer Designated Activity Company

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Glenbeigh 2 Issuer Designated Activity Company (Glenbeigh 2 or the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (high) (sf)
-- Class F Notes at BB (low) (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date. The rating on the Class B Notes addresses the timely payment of interest once most senior and the ultimate repayment of principal on or before the final maturity date. The ratings on the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and repayment of principal by the final maturity date. DBRS Morningstar does not rate the Class Z Notes, Class S Instruments (Class S1 and Class S2, together Class S), Class Y Instrument, or the VRR loan (Citibank, N.A., London Branch will retain at least 5% of each class of notes and the Instruments in the form of the VRR loan) issued in this transaction.

The proceeds from the issuance of the collateralised notes were used to purchase a buy-to-let (BTL) residential mortgage portfolio originated by Permanent TSB Plc (PTSB; the originator or the original seller). The portfolio was purchased by Citibank, N.A., London Branch (the sponsor) on 13 November 2020, and the beneficial interest was immediately transferred to Glenbeigh 2 Seller DAC (the interim seller). On the closing date, the beneficial interests were sold to the Issuer via multiple interim sellers.

The issuance structure under Glenbeigh 2 offers subordination and liquidity support for regular payments on the notes, through separate revenue and principal priority of payments. The structure features an amortising liquidity reserve fund (LRF) of 2.5% of the Class A outstanding balance (including the equivalent VRR loan proportion), which is funded at closing of the transaction, and provides liquidity support to the Class A Notes and the Class S instruments. Additional credit support is provided by the general reserve fund (GRF); it will be equal to 2.5% of the Class A closing balance (including the equivalent VRR loan proportion) minus the LRF.

Typical to Irish RMBS, the transaction features a provisioning mechanism in the transaction, linked to the arrears’ status of a loan in addition to provisioning based on losses. The degree of provisioning grows the longer a loan is in arrears. Additionally, recoveries form part of principal funds, thus helping in faster repayment of Class A, which would otherwise be used in payment of interest on junior notes.

As of 28 February 2021, the portfolio consisted of 780 loans with an aggregate outstanding balance of EUR 297.6 million. Most of these loans were securitised in the Fastnet transactions, which were rated by DBRS Morningstar. All of the mortgage loans in the portfolio are classified as BTL loans and are secured by a first-ranking mortgage right. About 13.5% of the loans have been restructured in the past, of which about 4.5% of the loans in the portfolio were restructured in the past three years. For most of these recent restructures, the borrower has agreed to an increase in the monthly payment (i.e., positive restructures).

There are no loans in 90 days past due (DPD) delinquency, but there are about 1.21% of the loans in 30 to 90 DPD delinquency, including which a total of 4.48% of the loans are in 0 to 90 DPD delinquency. About 36.5% of the portfolio has been given to borrowers flagged as self-employed or unemployed. About 86.1% of the portfolio consists of interest-only (IO) loans, with 13.0% being part and part loans, and the remaining being annuities. None of the loans were or have been granted payment holidays as a response to the Coronavirus Disease (COVID-19) pandemic.

The representations and warranties given by the original seller (PTSB), in the event of a breach, are time limited and monetarily capped. These limitations are mitigated because of the seasoning of the portfolio and the restructured nature of some loans (which would have required a detailed loan file scrutiny and a refresh of the borrower’s financial status). Furthermore: the day-to-day servicing and the legal title of the mortgage loans is expected to be transferred from PTSB to Pepper Finance Corporation (Ireland) DAC by 26 March 2021.

Citibank, N.A., London Branch (Citibank London) act as Issuer account bank. Based on the DBRS Morningstar private rating of Citibank London, the downgrade provisions outlined in the transaction documents, and the transaction structural mitigants, DBRS Morningstar considers the risk arising from the exposure to Citibank London 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 based its ratings on a review of the following analytical considerations:

-- The transaction's capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage loan portfolio and the ability of the parties to perform servicing and collection activities.
-- DBRS Morningstar estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. The PD, LGD, and EL are used as inputs into the cash flow engine. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda”.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes. The transaction cash flows were analysed using Intex DealMaker.
-- The Republic of Ireland's sovereign rating of A (high)/R-1 (middle) with Stable trends as of the date of this press release.
-- 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 relevant counterparties, as rated by DBRS Morningstar, are appropriately in line with DBRS Morningstar's legal criteria to mitigate the risk of counterparty default or insolvency.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents.

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 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 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar notes that the above press release was amended on 6 April 2021 to include the European RMBS Credit Model v 1.0.0.0 in the list of related methodologies/models.

Notes:
All figures are in euro unless otherwise noted.

The principal methodology applicable to assign ratings to this transaction is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (14 January 2021).

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 these ratings include PTSB and Citibank Europe plc. DBRS Morningstar was provided with loan-level data as of 31 December 2020 and historical performance data (loan-level payment history, which includes payment due, payments made, arrears balance, etc.) covering the period from December 2016 to December 2020.

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

DBRS Morningstar was supplied with one or more third-party assessments. DBRS Morningstar applied additional cash flow stresses in its 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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings (the Base Case):

-- In respect of the Class A Notes, a PD of 36.6% and LGD of 66.7%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class B Notes, a PD of 30.5% and LGD of 54.5%, corresponding to the AA (low) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C Notes, a PD of 27.4% and LGD of 49.4%, corresponding to the A (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class D Notes, a PD of 23.4% and LGD of 43.0%, corresponding to the BBB (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class E Notes, a PD of 17.0% and LGD of 29.9%, corresponding to the BB (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class F Notes, a PD of 14.3% and LGD of 23.9%, corresponding to the BB (low) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Notes risk sensitivity:
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class B Notes risk sensitivity:
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (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 BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)

Class C Notes risk sensitivity:
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

Class D Notes risk sensitivity:
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf)

Class E Notes risk sensitivity:
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)

Class F Notes risk sensitivity:
-- 25% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (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. 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.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Hrishikesh Oturkar, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 3 March 2021

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 this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda and European RMBS Credit Model v 1.0.0.0 (14 January 2021),
https://www.dbrsmorningstar.com/research/372339/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.
-- 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.
-- 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.
-- 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.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].