DBRS Morningstar Finalises Provisional Ratings on Jubilee Place 5 B.V.

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of loan and notes issued by Jubilee Place 5 B.V. (the Issuer):

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

DBRS Morningstar does not rate the Class G or Class R notes also issued in this transaction.

The rating on the Class A loan addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in July 2059. The rating on the Class B notes addresses the timely payment of interest when most senior and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class C to Class F notes address the ultimate payment of interest and principal by the legal final maturity date.

Jubilee Place 5 B.V. is a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The Issuer used the proceeds from the Class A loan and the issued notes to fund the purchase of Dutch mortgage receivables originated by Dutch Mortgage Services B.V., DNL 1 B.V., and Community Hypotheken B.V (the originators), which were acquired from Citibank, N.A., London Branch (the seller).

The originators are specialised residential buy-to-let (BTL) real estate lenders operating in the Netherlands and started their lending businesses in 2019. They operate under the mandate of Citibank, which defines most of the underwriting criteria and policies.

RATING RATIONALE
As of 31 August 2022, the portfolio consisted of 1,068 loans with a total portfolio balance of approximately EUR 409.1 million. The weighted-average (WA) seasoning of the portfolio is 0.2 years with a WA remaining term of 34.2 years. The WA current loan-to-value ratio, at 72.5%, is slightly above that of other Dutch BTL RMBS transactions. The loan parts in the portfolio are either interest-only loans (89.9%) or annuity mortgage loans (10.1%). A significant portion of the loans were granted for the purpose of equity release (50.1%). All of the loans in the portfolio are fixed with a compulsory future switch to floating. The loan and notes pay a floating rate. To address this interest rate mismatch, the transaction is structured with a fixed-to-floating interest rate swap where the Issuer pays a fixed rate and receives three-month Euribor over a notional, which is a defined amortisation schedule. There are no loans in arrears in the portfolio.

DBRS Morningstar calculated the credit enhancement for the Class A loan at 15.75%, which is provided by the subordination of the Class B to Class G notes. Credit enhancement for the Class B notes is 10.25% and is provided by the subordination of the Class C to Class G notes. Credit enhancement for the Class C notes is 7.50% and is provided by the subordination of the Class D to Class G notes. Credit enhancement for the Class D notes is 5.90% and is provided by the subordination of the Class E to Class G notes. Credit enhancement for the Class E notes is 4.75% and is provided by the subordination of the Classes F and G notes. Credit enhancement for the Class F notes is 3.75% and is provided by the subordination of the Class G notes.

The transaction benefits from an amortising liquidity reserve fund (LRF) that can be used to cover shortfalls on senior expenses and interest payments on the Class A loan. The LRF was partially funded at closing at 0.75% of (100/95) of the initial balance of the Class A loan and will build up until it reaches its target of 1.25% (100/95) of the outstanding balance of the Class A loan. The LRF is floored at 0.75% (100/95) of the initial balance of the Class A loan. The LRF indirectly provides credit enhancement for the Class A loan and all classes of notes, as released amounts are part of the principal available funds.

Additionally, the loan and notes are provided with liquidity support from principal receipts, which can be used to cover senior expenses and interest shortfalls on the Class A loan or the most-senior class of notes outstanding once the Class A loan has been fully repaid.

The Issuer entered into a fixed-to-floating swap with Citibank Europe plc (rated AA (low) with a Stable trend by DBRS Morningstar) to mitigate the fixed interest rate risk from the mortgage loans and the three-month Euribor payable on the loan and the notes. The notional of the swap is a pre-defined amortisation schedule of the assets. The Issuer pays a fixed swap rate and receives three-month Euribor in return. The swap documents are in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Issuer Account Bank is Citibank Europe plc, Netherlands Branch. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the loan and notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar based its ratings primarily on the following considerations:
-- The transaction capital structure, form, and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collection activities. DBRS Morningstar calculated portfolio default rates (PDs), loss given default (LGD), and expected loss (EL) outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the loan and notes according to the terms of the transaction documents. DBRS Morningstar analysed the transaction cash flows using the PD and LGD outputs provided by DBRS Morningstar’s European RMBS Insight Model. DBRS Morningstar analysed transaction cash flows using Intex DealMaker.
-- 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 transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the loan and notes.
-- 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General Considerations
Environmental (E) Factors
Emissions, Effluents & Waste is a relevant ESG factor. A Green Energy Label discount of 0.10% is applied to the interest rate/interest rate margin of loans backed by properties with an energy label of A or B at origination. For loans associated with properties with an energy label below B, a 0.15% discount is applied to their rates where the energy label has improved at least one notch within the first six months since origination. The lower interest rate has a positive impact on our default assumptions.

There were no 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 (17 May 2022).

DBRS Morningstar analysed the transaction structure in Intex DealMaker, considering the default rates at which the rated loan and rated notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are “European RMBS Insight Methodology” (28 March 2022) and “European RMBS Insight: Dutch Addendum” (7 March 2022).

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 materially deviated from its “European RMBS Insight: Dutch Addendum” methodology when determining the ratings assigned to the Class B to Class F notes by applying a custom high CPR vector instead of the standard high CPR stress of 20% from day one. The material deviation is warranted given the concentration of fixed-rate loans with an early repayment charge during the fixed period in this portfolio. Hence, DBRS Morningstar expects prepayment rates to remain low during the fixed-rate period and increase when borrowers come to the end of their fixed-rate period. To reflect this, DBRS Morningstar assumed a custom high CPR vector with CPR rates below 20% while loans are in a fixed-rate period followed by a period of CPR rates exceeding 20% when most loans in the portfolio come to the end of the fixed-rate period.

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/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 these ratings include Dutch Mortgage Services B.V., DNL 1 B.V., and Community Hypotheken B.V and its agents. DBRS Morningstar was provided with loan-level data as of 31 August 2022 and historical performance data of the originator’s loan book (outstanding balance, delinquencies by number of months in arrears, and total unscheduled periodic prepayments) from November 2019 to July 2022.

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. 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.

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.

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 loan, a PDR of 30.4% and LGD of 32.4%, 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 PDR of 26.8% and LGD of 26.0%, 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 PDR of 22.6% and LGD of 19.8%, 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 PDR of 18.5% and LGD of 15.5%, 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 PDR of 13.2% and LGD of 12.3%, 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 PDR of 11.1% and LGD of 11.1%, corresponding to the BB (low) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A loan:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A Loan;
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).

DBRS Morningstar concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

DBRS Morningstar concludes the following impact on the Class C notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).

DBRS Morningstar concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (sf).

DBRS Morningstar concludes the following impact on the Class E notes:
-- 25% increase of the PD, ceteris paribus, would not lead to a downgrade of the Class E Notes;
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class E Notes;
-- 50% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class E Notes;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf).

DBRS Morningstar concludes the following impact on the Class F notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to B (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to B (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to 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: Alejandro Tendero Delicado, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 20 October 2022

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v.5.7.0.1.
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.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/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 (22 September 2022),
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- 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.
-- 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.
-- 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].