DBRS Morningstar Assigns Ratings to Fastnet Securities 18 DAC

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes issued by Fastnet Securities 18 DAC (Fastnet 18 or the Issuer):

-- Class A1 notes at AAA (sf)
-- Class A2 notes at AAA (sf)
-- Class A3 notes at AAA (sf)
-- Class B notes at AA (sf)
-- Class C notes at A (high) (sf)
-- Class D notes at BBB (high) (sf)
-- Class E notes at BB (high) (sf)

RATING RATIONALE

The ratings of the Class A1, Class A2, and Class A3 notes (together, the Class A notes) address the timely payment of interest and the ultimate payment of principal on or before the final maturity. The rating of the Class B notes addresses the timely payment of interest when most senior and the ultimate payment of principal on or before the final maturity. 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.

The transaction features an amortising liquidity reserve fund (LRF) equal to 1% of the Class A notes outstanding balance to support the payment of senior expenses and Class A notes interest. Further credit enhancement is provided through a non-amortising general reserve fund (GRF), which is equal to 1% of the initial balance of the collateralised notes minus the balance of the LRF.

The credit enhancement is calculated as the overcollateralisation provided by the portfolio and the GRF. At closing, credit enhancement is 12.1% for the Class A notes, 9.1% for the Class B notes, 4.1% for the Class C notes, 2.1% for the Class D notes and 1.1% for the Class E notes. In case of an event of default, the Class A notes are repaid pro rata and pari passu; otherwise, they are paid sequentially (i.e., the Class A2 notes are not repaid until the Class A1 notes have been fully redeemed and the Class A3 notes are not repaid until the Class A2 notes have been fully redeemed). Additionally, the transaction documents include repurchase conditions, wherein if repurchased loans exceed EUR 50 million, the Class A notes are paid pro rata and pari passu; otherwise, they are paid sequentially.

As of 17 June 2022, the portfolio consisted of 17,891 loans granted to 16,811 borrowers with an aggregate outstanding balance of EUR 3.0 billion. The weighted-average (WA) seasoning of the portfolio was at 4.6 years, with a WA remaining term to maturity of 23.8 years. The DBRS Morningstar-calculated WA indexed loan-to-value (LTV) ratio of the portfolio was at 61.0%. The portfolio consists of only owner-occupied annuity loans, yielding a WA coupon of 2.75% and all are repaying loans. About 40.7% of the loans are granted on properties located in Dublin. As of the cut-off date, there were no loans more than 60 days past due.

The portfolio consists of 80.9% fixed-rate loans with a WA time to reset of around 2.3 years. The interest rate risk arising from the fixed-rate loans is partly hedged by the initial fixed-rate coupons on the Class A1, Class A2, and Class A3 notes, which will switch to floating-rate on the payment dates corresponding to January 2024, October 2024 and March 2025 respectively. DBRS Morningstar’s cash flow analysis also considered scenarios of ineffective hedging and found the risk to be commensurate with the assigned ratings. Additionally, if borrowers are offered a product switch to fixed-rate loans, then PTSB would have to repurchase these loans, which then mitigates interest rate risk associated with the addition of more fixed-rate loans to the portfolio.

The portfolio comprises both recent loan originations (78.3% originated since 2016) and loans originated during the great financial crisis era (15.9% originated between 2004 and 2009). However, the portfolio has shown strong performance, surviving the crisis as well as the Coronavirus Disease (COVID-19) pandemic and mostly without the need for restructuring (1.3% of the pool has been restructured with at least one year of performing history).

The Issuer account bank is BNP Paribas SA, Dublin Branch: based on DBRS Morningstar’s private rating on the account bank 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 DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar based its ratings primarily on the following analytical considerations:
-- The transaction 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.
-- The DBRS Morningstar-calculated portfolio default rate (PD), loss given default (LGD), and expected loss (EL) assumptions on the portfolio using the European RMBS Credit Model.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes. DBRS Morningstar analysed the transaction cash flows using Intex DealMaker.
-- The consistency of the transaction’s legal structure with the DBRS Morningstar “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, that 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” (29 November 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 methodology.

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 Permanent TSB plc and BNP Paribas. DBRS Morningstar was provided with loan-level data as of 17 June 2022, historical performance data on dynamic arrears (from 2017Q2 to 2022Q1) and on static pool defaults (from 2017 to 2021), as well as repossession data from 2007 to 2022.

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 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.

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

Sensitivity Analysis: 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):

-- In respect of the Class A notes, a PD of 20.4% and LGD of 51.0%, 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 13.2% and LGD of 36.6%, 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 10.1% and LGD of 31.3%, 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 6.8% and LGD of 23.9%, 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 3.0% and LGD of 13.8%, corresponding to the BB (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A1 Risk Sensitivity:
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, 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 A2 Risk Sensitivity:
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, 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 AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class A3 Risk Sensitivity:
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, 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 (high) (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 B Risk Sensitivity:
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 25% increase in LGD, expected rating of AA (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 (sf)

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

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

Class E Risk Sensitivity:
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in LGD, expected rating of BB (high) (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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: Marcos Meier, Senior Analyst
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 23 June 2022

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

DBRS Ratings GmbH
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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 (29 November 2021) and European RMBS Credit Model v 1.0.0.0, https://www.dbrsmorningstar.com/research/388848/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.
-- 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 (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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].