Press Release

DBRS Morningstar Confirms Ratings of Essence VI B.V. and Essence VII B.V.

RMBS

May 13, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) ratings on two series of Class A Notes (the Notes) issued by Essence VI B.V. and Essence VII B.V. (Essence VI and Essence VII, respectively).

The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity dates, on the payment dates in May 2065 and May 2057, for Essence VI and Essence VII, respectively.

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.
-- Portfolio default rate (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.
-- No revolving termination events have occurred.

Both transactions are securitisations of Dutch prime residential mortgages originated by NIBC Bank N.V. (NIBC) and its subsidiaries. The portfolios are serviced by NIBC, with Stater Nederland B.V., Quion Hypotheekbemiddeling B.V., Quion Hypotheekbegeleiding B.V., and Quion Services B.V. acting as subservicers.

Both transactions are still in their seven-year revolving periods, scheduled to terminate on the payment dates in May 2023 and May 2024, respectively. The end of the revolving period coincides with a step-up in the coupon as well as the first optional redemption date.

PORTFOLIO PERFORMANCE
As of the April 2022 payment date, loans two to three month in arrears represented 0.1% and 0.1% of the outstanding portfolio balance for Essence VI and Essence VII, respectively. As of the April 2022 payment date, the 90+ delinquency ratio was 0.1% and 0.1% for Essence VI and Essence VII, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has maintained its base case PD and LGD assumptions for Essence VI at 8.8% and 22.0% respectively, and at 9.5% and 12.5% for Essence VII, respectively.

CREDIT ENHANCEMENT
As of the April 2022 payment date, the credit enhancement to the Notes issued by Essence VI increased to 14.9% from 14.4% 12 months prior. The credit enhancement to the Notes issued by Essence VII has increased by a nominal amount, but is approximately stable at 14.0%.

Amortisation of the Notes is permitted in both transactions if the replenishment available amount is not applied toward the purchase of new receivables on a payment date or is reserved for the purchase of new receivables on two consecutive payment dates. In this case, the proceeds are applied toward the sequential redemption of the Class A and Class B Notes. This has been the case for Essence VI since the January 2021 payment date and for Essence VII since the April 2022 payment date.

Both transactions benefit from a reserve fund, which covers senior fees, interest shortfall, and principal losses on the Notes and a liquidity reserve, which covers senior fees and interest on the Notes. The reserve fund in each transaction is permitted to amortise, provided that the 90+ delinquency ratio and the cumulative realised loss percentages are lower than 3% and 2%, respectively.

For Essence VI, the reserve fund and liquidity reserve are both at their target levels of EUR 5.9 million and EUR 3.0 million, respectively. For Essence VII, the reserve fund and liquidity reserve are both at their target levels of EUR 4.5 million and EUR 2.3 million, respectively.

BNP Paribas SA, Netherlands Branch and ABN AMRO Bank N.V. act as the account banks for Essence VI and Essence VII, respectively. Based on the DBRS Morningstar private ratings of BNP Paribas SA, Netherlands Branch and the account bank reference rating of ABN AMRO Bank N.V. at AA (low), which is one notch below the DBRS Morningstar public Long-Term Critical Obligations Rating of AA, 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 bank in each transaction to be consistent with the rating assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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 euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (8 February 2022).

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.

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in both transactions, the analysis considers potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 provided by NIBC, and loan-level data 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 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 actions on Essence VI and Essence VII took place on 14 May 2021, when DBRS Morningstar confirmed the ratings of the Class A Notes at AAA (sf) in each transaction.

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 rating (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 worst-case pool of loans are 8.8% and 22.0% for Essence VI, respectively, and 9.5% and 12.5% for Essence VII, 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 issued by Essence VI would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (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 fall to A (low) (sf).

Essence VI Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (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)

Essence VII Class A Notes 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 (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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 A (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 ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date for Essence VI: 17 May 2016
Initial Rating Date for Essence VII: 22 May 2017

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.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

Download This Press Release