DBRS Morningstar Confirms Rating on Essence VIII B.V.

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A notes (the notes) issued by Essence VIII B.V. (the Issuer).

The rating on the notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2058.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the October 2022 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on a potential portfolio migration based on the additional purchase conditions; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.

The transaction is a securitisation of Dutch prime first-lien or first-lien with further-ranking residential mortgages originated by NIBC Bank N.V. (NIBC) and its subsidiaries. NIBC services the portfolio and Stater Nederland B.V. acts as subservicer. The transaction closed in October 2020.

Principal repayments on the Class A and Class B notes are made on a pro rata basis until the first optional redemption date (FORD) at the October 2027 payment date, at which point the coupons on the Class A notes will step up. DBRS Morningstar does not rate the Issuer’s Class B and Class C notes. The notes will switch to sequential from pro rata redemption if any of the conditions under the sequential amortisation trigger events are satisfied. The purchase of additional receivables in the form of substitution mortgages, ported mortgages, and further advances is allowed under specific conditions between closing and the earlier of the FORD and a sequential amortisation trigger event.

The properties in the portfolio are currently buy to let; however, other types of properties are allowed in the context of the additional receivables purchase, hence the nature of the portfolio can change over time. A minor portion of construction mortgages is allowed in the portfolio and the undrawn part of the mortgage is funded by an equivalent amount of cash held at the Issuer account bank.

PORTFOLIO PERFORMANCE
The delinquency levels have been low since closing. As of the October 2022 payment date, mortgages one to two months and two to three months in arrears were at 1.0% and 0.01% of the portfolio outstanding balance, respectively, with no mortgages more than three months in arrears. There have been no foreclosures to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its base case PD and LGD assumptions at 5.6% and 10.0%, respectively.

The base case PD and LGD assumptions are based on the potential migration of the current portfolio as per the additional purchase conditions set out in the transaction documents.

CREDIT ENHANCEMENT
The credit enhancement to the notes consists of subordination of the Class B notes and the cash reserve. As of the October 2022 payment date, the credit enhancement to the notes was 9.0%, unchanged from DBRS Morningstar’s initial rating due to the pro rata amortisation of the notes.

The transaction benefits from a (1) cash reserve, which covers senior fees, interest shortfall, and principal losses on the notes and a (2) liquidity reserve, which covers senior fees and interest on the notes. The cash reserve and liquidity reserve are both amortising and were both at their target levels of EUR 1.9 million and EUR 1.4 million, respectively, as of the October 2022 payment date.

There is a principal deficiency ledger (PDL) in place for both the Class A and Class B notes, which records realised losses on the mortgage receivables. As of the October 2022 payment date, both PDLs were clear.

Coöperatieve Rabobank U.A. (Rabobank) acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of AA on Rabobank (which is one notch below the DBRS Morningstar public Long Term Critical Obligations Rating of AA (high)), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent to 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 notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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 (17 May 2022).

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology” (19 May 2022).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://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.

An asset and a cash flow analysis were both conducted. Due to the presence of substitutions, ported mortgages and further advances in the transaction, the analysis continues to consider potential portfolio migration based on additional purchase conditions 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/401817/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 this rating include investor reports provided by NIBC and loan-level data provided by 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 rating, 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 this rating 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 28 October 2021, when DBRS Morningstar confirmed its AAA (sf) rating on the Class A notes.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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 rating, 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 current portfolio under a potential migration based on the additional purchase conditions are 5.6% and 10.0%, 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 on the notes would be expected to fall to A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the notes would be expected to fall to A (high) (sf).

Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (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 (high) (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 AA (low) (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: http://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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 28 October 2020

DBRS Ratings GmbH
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (19 May 2022),
https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v5.7.0.1,
https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology.
-- European RMBS Insight: Dutch Addendum (7 March 2022),
https://www.dbrsmorningstar.com/research/393357/european-rmbs-insight-dutch-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/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: http://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].