Press Release

DBRS Morningstar Confirms Rating on Class A Notes Issued by Candide Financing 2021-1 B.V.

RMBS

November 18, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A notes issued by Candide Financing 2021-1 B.V. (the Issuer).

The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal by the legal final maturity date in November 2060.

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 August 2022 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the Class A notes to cover the expected losses at the AAA (sf) rating level.

The transaction is a securitisation of a portfolio of Dutch first-lien residential mortgage loans secured by owner-occupied residential properties located in the Netherlands. The mortgage loans were originated by Lloyds Bank GmbH-Amsterdam branch, Lloyds Hypotheken BV, and the Bank of Scotland Plc-Amsterdam branch and sold by Lloyds Bank GmbH.

PORTFOLIO PERFORMANCE
As of the August 2022 payment date, loans two to three months in arrears represented 0.0% of the outstanding portfolio balance, unchanged since the initial rating date. The 90+-day delinquency and cumulative default ratios also remained at 0.0% over the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated the base case PD and LGD assumptions to 1.0% and 6.2%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the Class A notes is provided by subordination of junior notes and a nonamortising reserve fund. Due to the amortisation of the Class A notes, its credit enhancement increased to 5.6% from 5.1% at closing last year.

The transaction benefits from a nonamortising reserve fund, funded at 0.75% of the Class A and Class B notes’ initial balance. The reserve fund is available to cover senior fees and interest shortfalls on the Class A notes. As of August 2022, the reserve fund was at its initial level of EUR 3.9 million.

Further liquidity support for the Class A notes is provided through a cash advance facility, along with a priority of payments allowing principal to be borrowed to support revenue items with a corresponding debit to the appropriate principal deficiency ledger. The cash advance facility will amortise with no performance conditions attached and is funded at 1.0% of the Class A notes’ outstanding balance with a floor of 0.5% of the Class A notes’ initial balance. The cash advance facility is a renewable facility until the first optional repayment date and will be drawn down by the Issuer if not renewed.

BNG Bank N.V. acts as the account bank for the Issuer. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risks arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Lloyds Bank plc acts as the swap counterparty to the Issuer. DBRS Morningstar’s Long Term Critical Obligations Rating of AA (high) on Lloyds Bank plc is above the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Social (S) Factors
Around 57% of the pool consists of loans backed by the Dutch National Mortgage Guarantee (Nationale Hypotheek Garantie, or NHG) scheme. DBRS Morningstar considers the scheme to be a relevant social factor (Social Impact of Product & Services) as outlined within the DBRS Morningstar framework. DBRS Morningstar assumed reduced loss severity for loans backed by the NHG guarantee as outlined in its “European RMBS Insight: Dutch Addendum” methodology. This is credit positive but did not affect the rating. Please also refer to https://www.dbrsmorningstar.com/research/366268/nhg-a-dutch-loan-guarantee-program-that-is-both-socially-supportive-and-credit-positive for more details.

There were no Environmental/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: 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.

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 Intertrust Administrative Services B.V. 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 rating, DBRS Morningstar was supplied with third-party assessment. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purpose 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 the transaction took place on 18 November 2021, when DBRS Morningstar finalised its provisional rating of AAA (sf) on the Class A notes.

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

Sensitivity Analysis: To assess the impact of changing the transaction’s 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 of 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 rating.
-- The base case PD and LGD assumptions for the collateral pool are 1.0% and 6.2%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating on 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 on 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 on the Class A notes would be expected to fall to AA (high) (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 AA (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.

This rating is 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: 2 November 2021

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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The rating methodologies used in the analysis of this transaction 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 these credits 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.

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