DBRS Morningstar Confirms and Upgrades Ratings on Towd Point Mortgage Funding 2019-Granite5 Plc

DBRS Ratings Limited (DBRS Morningstar) took the following rating actions on the notes issued by Towd Point Mortgage Funding 2019-Granite5 Plc (the Issuer):

-- Class A notes confirmed at AAA (sf)
-- Class B notes upgraded to AAA (sf) from AA (sf)
-- Class C notes upgraded to A (high) (sf) from A (low) (sf)
-- Class D notes upgraded to A (sf) from BBB (sf)
-- Class E notes upgraded to A (low) (sf) from BB (high) (sf)
-- Class F notes upgraded to BBB (high) (sf) from B (sf)

Additionally, DBRS Morningstar removed the Under Review with Positive Implications (UR-Pos.) status from the Class B, Class C, Class D, Class E, and Class F notes.

The ratings of the Class A and Class B notes address the timely payment of interest and the full payment of principal by the legal final maturity date in July 2044. The ratings of the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and principal.

The rating actions are the result of an entire review of the transaction following the finalisation of DBRS Morningstar’s updated “European RMBS Insight: UK Addendum” methodology (the Methodology) on 27 October 2021. The Methodology presents the criteria under which UK RMBS ratings and, where relevant, UK covered bonds ratings are assigned and/or monitored.

The changes to the Methodology include revisions to the loan scoring approach, delinquency migration matrices, and loss given default floors, as well as updates to house price indexation and market value decline rates through the first quarter of 2020. For more details, see the following press release: https://www.dbrsmorningstar.com/research/386600/dbrs-morningstar-publishes-final-european-rmbs-insight-uk-addendum.

In addition to the material changes introduced by the Methodology, the rating actions are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2022 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The Issuer is a securitisation of UK unsecured consumer loans offered to borrowers at the same time they took out a mortgage loan offered by the Originator, Landmark Mortgages Limited (Landmark, formerly Northern Rock Asset Management plc). The loans were acquired by Cerberus European Residential Holdings B.V. from Landmark and were previously securitised by Towd Point Mortgage Funding 2016-Granite3 plc. The portfolio is serviced by Landmark as Master Servicer who delegated servicing of the loans to Computershare Mortgage Services Limited.

PORTFOLIO PERFORMANCE
As of the January 2022 payment date, loans two to three months in arrears represented 0.6% of the outstanding portfolio balance, stable since January 2021. Loans at least three months in arrears represented 19.5% of the outstanding portfolio balance, up from 17.0% in January 2021. Cumulative losses since closing were 6.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the current pool of receivables including additional coronavirus-related adjustments and updated its base case PD and LGD assumptions to 29.9% and 100%, respectively.

CREDIT ENHANCEMENT
CE is provided by subordination of the junior notes. DBRS Morningstar excluded the balance of loans at least 12 months in arrears when calculating the CE. As of the January 2022 payment date, Class A CE was 86.1%, up from 49.5% at the DBRS Morningstar initial rating; Class B CE was 80.1%, up from 46.0% at the DBRS Morningstar initial rating; Class C CE was 67.1%, up from 38.6% at the DBRS Morningstar initial rating; Class D CE was 59.1%, up from 34.0% at the DBRS Morningstar initial rating; Class E CE was 50.1%, up from 28.8% at the DBRS Morningstar initial rating; Class F CE was 43.1%, up from 24.8% at the DBRS Morningstar initial rating.

The transaction benefits from a Liquidity Facility, an amortising Class A Liquidity Reserve Fund, and an Excess Cash Flow Reserve Fund (ECRF). The Liquidity Facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar) and sized at 1.7% of the principal amount outstanding of the Class A notes. The Liquidity Facility covers senior fees and interest payments on Class A notes up to the Liquidity Facility Cancellation Date. The Class A Liquidity Reserve Fund will cover senior fees and interest payments on the Class A notes from the Liquidity Facility Replacement Date in October 2025 and will be funded by available principal and revenue receipts. It will be amortising and sized at 1.7% of the principal amount outstanding of the Class A notes. The ECRF will be established from the First Optional Redemption Date (April 2024, if redemption is not exercised) until the Class B to Class F notes have been repaid in full and will be available to pay interest due on the Class B to Class F notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class B to Class F notes are no longer outstanding.

Elavon Financial Services DAC, U.K. Branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon Financial Services DAC, U.K. Branch, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A and Class B notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The ratings of the Class C, Class D, Class E, and Class F notes at A (high) (sf), A (sf), A (low) (sf), and BBB (high) (sf), respectively, materially deviate from the higher rating implied by the quantitative model. DBRS Morningstar considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by a quantitative model that is a substantial component of a rating methodology; in this case, the ratings of the Class C, Class D, and Class E notes address the ultimate payment of interest and principal on or before the final maturity date as defined in the transaction legal documents. DBRS Morningstar typically expects bonds rated in the AA category in the respective rating scenario to be able to pay interest timely at the time they are the most senior bond in the transaction. Additionally, the ratings of the junior notes reflect their sensitivity to changes in the PD, in conjunction with the potential for deterioration in the credit risk of the asset portfolio.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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. 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 increased its PD for loans, which been subject to restructuring arrangements, and assessed a potential reduction in portfolio prepayment rates.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update 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.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodologies applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” (8 February 2021) and the “European RMBS Insight: UK Addendum” (27 October 2021).

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.

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

A review of the transaction legal documents was conducted in September 2021 following an amendment to the transaction. The amendment involved an adjustment to the Standard Variable Rate Floor applicable to the loans to reference Sonia instead of Libor, which became effective in January 2022.

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 investor reports and loan-level data provided by U.S. Bank Global Corporate Trust Limited.

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

At the time of the initial ratings, 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 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 3 November 2021, when DBRS Morningstar placed the ratings of the Class B, Class C, Class D, Class E, and Class F notes UR-Pos. following the publication of the Methodology on 27 October 2021. Prior to that, on 18 November 2020, DBRS Morningstar confirmed its ratings of the Class A, Class B, Class C, Class D, Class E, and Class F notes at AAA (sf), AA (sf), A (low) (sf), BBB (sf), BB (high) (sf), and B (sf), respectively.

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.
-- The base case PD and LGD of the current pool of loans for the Issuer are 29.9% and 100.0%, 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 Class A notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to remain at AAA (sf).

Class A 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)

Class B 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 AA (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 AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (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 (high) (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (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 (sf)

Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (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 A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

Class F Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (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 BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (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 rating are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Andrew Lynch, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 13 November 2019

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: https://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- 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.
-- European RMBS Insight Methodology (3 June 2021) and European Asset RMBS Insight Model v5.4.1.0, https://www.dbrsmorningstar.com/research/379557/european-rmbs-insight-methodology.
-- European RMBS Insight: UK Addendum (27 October 2021),
https://www.dbrsmorningstar.com/research/386599/european-rmbs-insight-uk-addendum.
-- 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.
-- 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].