DBRS Morningstar Finalises Its Provisional Ratings on Glenbeigh 2 Issuer 2021-2 Designated Activity Company

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Glenbeigh 2 Issuer 2021-2 Designated Activity Company (Glenbeigh 2021-2 or the Issuer):

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

The final 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 final 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 final 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 retains at least 5% of each class of notes and the Instruments in the form of the VRR loan) also issued in this transaction. Compared with the provisional capital structure, the closing pool and respectively the notes have been downsized. As a result of the final transaction size being smaller than initially assumed, the finalised rating on the Class F Notes differs compared with the provisional rating due to the fixed costs being now a relatively larger proportion of the total costs.

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 2021-2 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); it was funded at closing of the transaction, and will provide liquidity support to the Class A Notes and the Class S Instruments. Additional credit support could be 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 also 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 31 May 2021, the portfolio consisted of 1,589 loans with an aggregate outstanding balance of EUR 589.4 million. Most of these loans were securitised in the Fastnet transactions, which were rated by DBRS Morningstar. All of the mortgage loans in the final portfolio are classified as BTL loans and are secured by a first-ranking mortgage right. About 17.2% of the loans have been restructured in the past, of which about 4.1% 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 0.2% of the loans in the final pool in more than 90 days past due (DPD) delinquency, about 1.1% of the loans are currently in 30 to 90 DPD delinquency, with a total of 5.5% of the loans being in arrears. About 32.1% of the portfolio has been given to borrowers flagged as self-employed. About 84.6% of the portfolio consists of interest-only (IO) loans, with 14.5% 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 have been transferred to Pepper Finance Corporation (Ireland) DAC from PTSB on 26 March 2021.

Citibank, N.A., London Branch (Citibank London) acts as Issuer account bank. Based on the DBRS Morningstar private rating of Citibank London, the downgrade provisions outlined in the 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 Positive/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 immediate economic contraction, leading to increases in unemployment rates and income reductions for borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many RMBS transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar conducted additional analysis to determine the transaction benefits from sufficient liquidity support in case of high level of payment moratoria in the portfolio.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

On 14 June 2021, DBRS Morningstar updated its 5 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated RMBS transactions in Europe one year on. For more details, please see: https://www.dbrsmorningstar.com/research/380094/the-impact-of-covid-19-on-european-mortgage-performance-one-year-on and https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 19 October 2021 to include citation of the EU RMBS credit model and derivative criteria that DBRS Morningstar used to analyse the transaction.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to assign the provisional ratings to this transaction is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (17 September 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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include Pepper and Citibank Europe plc. DBRS Morningstar was provided with loan-level data as of 31 May 2021 and historical performance data (loan level payment history, includes payment due, payments made, and arrears balances) covering the period from February 2017 to May 2021.

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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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 34.9% and LGD of 67.8%, 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 29.0% and LGD of 57.7%, corresponding to the AA (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 25.1% and LGD of 49.3%, corresponding to the A (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 20.6% and LGD of 41.8%, corresponding to the BBB (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 16.1% and LGD of 32.4%, 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 13.6% and LGD of 26.7%, 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 (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 (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 (high) (sf)
-- 50% increase in PD, expected rating of A (low) (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 (low) (sf)
-- 25% increase in LGD, expected rating of BBB (high) (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 BB (high) (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 B (high) (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: Ronja Dahmen, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 16 September 2021

DBRS Ratings GmbH
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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 (17 September 2021) and European RMBS Credit Model v 1.0.0.0, https://www.dbrsmorningstar.com/research/384582/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/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].