DBRS Morningstar Upgrades and Confirms Ratings on Delft 2020 B.V.

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Delft 2020 B.V. (Delft 2020 or the Issuer):
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (high) (sf) from AA (sf)
-- Class D confirmed at A (sf)
-- Class E confirmed at BBB (sf)
-- Class F confirmed at BB (low) (sf)

The ratings on the Class A and Class B notes address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2042. The rating on the Class C notes addresses the ultimate payment of interest and principal on or before the legal final maturity date while junior, and the timely payment of interest while it is the senior-most class outstanding. The ratings on the Class D, Class E, and Class F notes address the ultimate payment of interest and principal on or before the legal final maturity date.

Accrued interest on the Class B to Class F notes is subject to a net weighted-average coupon cap (NWC). DBRS Morningstar’s ratings do not address the payments of the NWC additional amounts, which are the amounts accrued and become payable junior in the revenue and principal waterfall if the coupon due on a series of notes exceeds the applicable NWC.

The rating actions follow an annual review of the transaction 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 their respective rating levels.

Delft 2020 is a securitisation of Dutch nonconforming mortgage loans previously securitised in Delft 2017 B.V. and Delft 2019 B.V. The mortgages were originated by ELQ Portefeuille 1 B.V. (ELQ) and Quion 50 B.V. (Quion), which were subsidiaries of Lehman Brothers through ELQ Hypotheken N.V. Adaxio B.V. services the portfolio, with Intertrust Administrative Services B.V. acting as the backup servicer facilitator.

PORTFOLIO PERFORMANCE
As of the October 2022 payment date, loans that were two to three months in arrears represented 0.8% of the outstanding portfolio balance. The 90+ delinquency ratio was 0.7% and the cumulative default ratio was 0.9%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions at the B (sf) rating level to 12.6% and 12.7% respectively.

CREDIT ENHANCEMENT
As of the October 2022 payment date, the credit enhancements available to the Class A, Class B, Class C, Class D, Class E, and Class F notes were 37.8%, 25.9%, 19.1%, 12.8%, 7.2%, and 3.9%, respectively, up from 30.9%, 21.1%, 15.6%, 10.4%, 5.8%, and 3.0%, 12 months earlier, respectively. Credit enhancement is provided by the subordination of the junior classes and the nonliquidity reserve fund.

The transaction benefits from a non-amortising reserve fund of EUR 5.1 million, equal to 2.0% of the initial balance of the Class A to Class Z notes, and split into a liquidity reserve fund and a nonliquidity reserve fund. The liquidity reserve fund is equal to 2.0% of the outstanding balance of the Class A notes, subject to a floor of 1.0% of the initial balance of the Class A notes, and is available to cover senior fees and interest on the Class A notes. The nonliquidity reserve fund is equal to the difference between the total reserve fund and the liquidity reserve fund and is available to cover senior fees, interest on the rated notes, and principal on the rated notes via the principal deficiency ledgers. As the liquidity reserve fund amortises, excess amounts form part of the available revenue funds and allow the nonliquidity reserve fund to increase in size.

ABN AMRO Bank N.V. (ABN AMRO) acts as the account bank for the transaction. Based on the account bank reference rating of ABN AMRO 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 structure, DBRS Morningstar considers the risk 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.

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.

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 the “Master European Structured Finance Surveillance Methodology” (21 December 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 transaction 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 these ratings include investor reports and loan-level data provided by Adaxio B.V.

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 action on this transaction took place on 21 January 2022, when DBRS Morningstar took the following rating actions on the notes:

-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to AA (sf) from A (sf)
-- Class D upgraded to A (sf) from BBB (sf)
-- Class E upgraded to BBB (sf) from BB (low) (sf)
-- Class F upgraded to BB (low) (sf) from B (low) (sf)

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 parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (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 pool of loans for the Issuer at the B (sf) rating level are 12.6% and 12.7%, 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 would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of 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 of 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)

Class B 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 (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 (low) (sf)

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

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf) -- 50% increase in PD and 25% increase in LGD, expected rating below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 6 January 2020

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.

-- Legal Criteria for European Structured Finance Transactions (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (21 December 2022), https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology.
-- 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.
-- 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.
-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v5.7.1.0, 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.

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].