Press Release

DBRS Morningstar Upgrades Ratings on Towd Point Mortgage Funding 2019-Granite5 Plc

RMBS

February 02, 2023

DBRS Ratings Limited (DBRS Morningstar) upgraded its ratings on the notes issued by Towd Point Mortgage Funding 2019-Granite5 Plc (the Issuer) as follows:

-- Class C notes upgraded to AAA (sf) from A (high) (sf)
-- Class D notes upgraded to AAA (sf) from A (sf)
-- Class E notes upgraded to AA (high) (sf) from A (low) (sf)
-- Class F notes upgraded to AA (high) (sf) from BBB (high) (sf)

The ratings on the Class C and Class D notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class E and Class F notes address the ultimate payment of interest and principal while junior, and the timely payment of interest while the senior-most class outstanding.

The upgrades follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

The transaction is a securitisation of UK unsecured consumer loans offered to borrowers at the same time they took out a mortgage loan offered by the originator, Landmark Mortgages Limited (Landmark, formerly Northern Rock Asset Management plc). The loans were acquired by Cerberus European Residential Holdings B.V. from Landmark and were previously securitised by Towd Point Mortgage Funding 2016-Granite3 plc. The portfolio is serviced by Landmark as master servicer, which delegated servicing of the loans to Computershare Mortgage Services Limited.

PORTFOLIO PERFORMANCE
As of 31 December 2022, loans two to three months in arrears represented 0.9% of the outstanding portfolio balance, up from 0.7% a year prior. Loans at least three months in arrears represented 22.1% of the outstanding portfolio balance, up from 19.1% a year prior. Cumulative losses since closing were 8.6%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the current pool of receivables and updated its base case PD and LGD assumptions at the B (sf) rating level to 29.4% and 100%, respectively.

CREDIT ENHANCEMENT
CE is provided by the subordination of the junior notes. DBRS Morningstar excluded the balance of loans at least four months in arrears when calculating the CE. As of the January 2023 payment date, Class C CE was 97.0%, up from 38.6% at the DBRS Morningstar initial rating; Class D CE was 86.2%, up from 34.0% at the DBRS Morningstar initial rating; Class E CE was 74.0%, up from 28.8% at the DBRS Morningstar initial rating; Class F CE was 64.5%, up from 24.8% at the DBRS Morningstar initial rating.

A liquidity facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar) and sized at 1.7% of the principal amount outstanding of the Class A notes. The liquidity Facility was available to cover senior fees and interest payments on the Class A notes until the Class A notes were fully repaid on the July 2022 payment date (liquidity facility cancellation date).

An Excess Cash Flow Reserve Fund (ECRF) will be established from the First Optional Redemption Date (April 2024, if redemption is not exercised) until the rated notes have been repaid in full, and will be available to pay interest due on the outstanding rated notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class C to Class F notes are no longer outstanding.

Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, 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 ratings assigned to the Class C and Class D 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 British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (21 December 2022): https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology.

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 Elavon.

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 2 February 2022 when DBRS Morningstar confirmed its rating on the Class A notes at AAA (sf), and upgraded its ratings on the Class B, Class C, Class D, Class E, and Class F notes to AAA (sf), A (high) (sf), A (sf), A (low) (sf), and BBB (high) (sf), respectively, from AA (sf), A (low) (sf), BBB (sf), BB (high) (sf), and B (sf), respectively. DBRS Morningstar subsequently discontinued its ratings on the Class A and Class B notes on 10 August 2022 and 10 November 2022, respectively, following their repayment in full.

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

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 29.4% and 100.0%, respectively.

-- The risk sensitivity overview below illustrates the ratings expected if the PD increases by a certain percentage over the base case assumption. For example, if the PD increases by 25%, the rating of the Class C notes would be expected to remain at AAA (sf), assuming no change in the LGD. If the PD increases by 50%, the rating of the Class C notes would be expected to remain at AAA (sf), assuming no change in the LGD. DBRS Morningstar did not apply increased stress scenarios for the LGD, as the LGD for this portfolio is 100%.

Class C Risk Sensitivity:
-- 25% increase in PD, expected rating of AAA (SF)
-- 50% increase in PD, expected rating of AAA (SF)

Class D Risk Sensitivity:
-- 25% increase in PD, expected rating of AAA (SF)
-- 50% increase in PD, expected rating of AAA (SF)

Class E Risk Sensitivity:
-- 25% increase in PD, expected rating of AA (high) (SF)
-- 50% increase in PD, expected rating of AA (high) (SF)

Class F Risk Sensitivity:
-- 25% increase in PD, expected rating of AA (high) (SF)
-- 50% increase in PD, expected rating of AA (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 GmbH for use in the European Union.

Lead Analyst: Clare Wootton, Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 13 November 2019

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor
London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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 this credit 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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