DBRS Morningstar Upgrades and Confirms Ratings on Two Finance Ireland RMBS Transactions

DBRS Ratings GmbH (DBRS Morningstar) took the following rating actions on the notes issued by Finance Ireland RMBS No. 2 DAC (Finance Ireland 2) and Finance Ireland RMBS No. 3 DAC (Finance Ireland 3):

Finance Ireland 2:
-- 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 upgraded to AA (high) (sf) from AA (low) (sf)
-- Class E upgraded to A (high) (sf) from A (sf)
-- Class F upgraded to A (low) (sf) from BBB (high) (sf)

Finance Ireland 3:
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to AA (high) (sf) from AA (low) (sf)
-- Class D upgraded to AA (sf) from A (sf)
-- Class E upgraded to A (low) (sf) from BBB (low) (sf)
-- Class F upgraded to BBB (sf) from BB (high) (sf)

DBRS Morningstar discontinued its rating on the Class X notes in Finance Ireland 3 in April 2023 as they were fully repaid.

The ratings on the Class A and Class B notes in Finance Ireland 2 address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in September 2060. The ratings on the Class C and Class D notes address the ultimate payment of interest and principal on or before the legal final maturity date while the most junior class and timely payment of interest while the most senior class outstanding. The rating on the Class E and Class F notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The rating on the Class A notes in Finance Ireland 3 addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in June 2061. The ratings on the Class B, Class C, Class D, and Class E notes address the ultimate payment of interest and principal on or before the legal final maturity date while the most junior class and timely payment of interest while the most senior class outstanding. The rating on the Class F notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The rating actions are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the March 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.

The transactions are static securitisations of Irish first-lien residential mortgages originated primarily by Finance Ireland Credit Solutions DAC and Pepper Finance Corporation (Ireland) DAC, which also acts as the servicer of the mortgage portfolios. Finance Ireland 2 closed in September 2020 with an initial portfolio balance of EUR 295.2 million while Finance Ireland 3 closed in June 2021 with an initial portfolio balance of EUR 297.5 million.

PORTFOLIO PERFORMANCE
As of the March 2023 payment date, loans one to two and two to three months in arrears in Finance Ireland 2 represented 0.3% and 0.1% of the outstanding portfolio balance, respectively, while the 90+-day delinquency ratio was 0.5%. Loans one to two and two to three months in arrears in Finance Ireland 3 represented 0.4% and 0.1% of the outstanding portfolio balance, respectively, while the 90+-day delinquency ratio was 0.1%. Across both transactions, there have not been any repossessions or cumulative losses reported to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pools of receivables and updated its base case PD and LGD assumptions to 1.1% and 5.4%, respectively, for Finance Ireland 2 and to 1.2% and 9.2%, respectively, for Finance Ireland 3.

CREDIT ENHANCEMENT
Credit enhancement to the respective rated notes is provided by the subordination of the junior classes and the general reserve fund. As of the March 2023 payment date, credit enhancement available to the Class A, Class B, Class C, Class D, Class E, and Class F notes in Finance Ireland 2 was 25.9%, 17.0%, 12.3%, 8.2%, 5.3%, and 3.9%, respectively, up from 19.6%, 12.8%, 9.2%, 6.1%, 3.8%, and 2.7% at the time of the last annual review, respectively. As of the same date, credit enhancement available to the Class A, Class B, Class C, Class D, Class E, and Class F notes in Finance Ireland 3 was 20.5%, 13.3%, 9.4%, 5.8%, 3.4%, and 2.2%, respectively, up from 17.9%, 11.7%, 8.3%, 5.2%, 3.1%, and 2.1% at the time of the last annual review, respectively.

The transactions each benefit from a liquidity reserve fund and a general reserve fund, providing liquidity support and credit support to the structures, respectively.

The liquidity reserve funds are available to cover senior fees and interest on the respective Class A notes and are currently at their target levels of EUR 1.65 million and EUR 1.56 million for Finance Ireland 2 and Finance Ireland 3, respectively, equal to 1.00% and 0.75% of the outstanding principal balance of the Class A notes in each transaction, respectively. The liquidity reserve fund of Finance Ireland 3 also has a floor at EUR 1.0 million.

The general reserve funds are available to cover senior fees, interest, and principal (via the principal deficiency ledgers) on the respective rated notes. The general reserve funds are currently at their target levels of EUR 441,000 and EUR 339,975 for Finance Ireland 2 and Finance Ireland 3, respectively, equal to 1.00% and 0.75% of the outstanding principal balance of the rated notes in each transaction, respectively, minus the respective liquidity reserve target amount.

Elavon Financial Services DAC (Elavon) acts as the account bank for the transactions. Based on DBRS Morningstar’s private rating on Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the rated notes in the transactions, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA acts as the swap provider for the transactions. DBRS Morningstar's public Long Term Critical Obligations Rating of AA (high) on BNP Paribas SA is above the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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.

DBRS Morningstar analysed the transaction structures 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” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 transactions 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 provided by U.S. Bank Global Corporate Trust Limited (as the cash manager) 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 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 Finance Ireland 2 took place on 3 May 2022, when DBRS Morningstar confirmed its ratings on the Class A and Class B notes at AAA (sf) and AA (high) (sf), respectively, and upgraded its ratings on the Class C, Class D, Class E, and Class F notes to AA (sf), AA (low) (sf), A (sf), and BBB (high) (sf), respectively, from AA (low) (sf), A (sf), BBB (low) (sf), and BB (high) (sf), respectively. DBRS Morningstar also removed the ratings from Under Review with Positive Implications, where they were placed on 31 January 2022.

The last rating action on Finance Ireland 3 took place on 18 April 2023, when DBRS Morningstar discontinued its rating on the Class X notes following their full repayment. Previously, on 3 May 2022, DBRS Morningstar confirmed its ratings on the Class A and Class B notes at AAA (sf) and AA (sf), respectively, and upgraded its ratings on the Class C, Class D, Class E, Class F, and Class X notes to AA (low) (sf), A (sf), BBB (low) (sf), BB (high) (sf), and BBB (low) (sf), respectively, from A (sf), BBB (sf), BB (high) (sf), B (high) (sf), and BB (low) (sf), respectively. DBRS Morningstar also removed the ratings from Under Review with Positive Implications, where they were placed on 31 January 2022.

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 Finance Ireland 2 are 1.1% and 5.4%, respectively; the base case PD and LGD of the current pool of loans for Finance Ireland 3 are 1.2% and 9.2%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A notes of Finance Ireland 2 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 of Finance Ireland 2 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 of Finance Ireland 2 would be expected to remain at AAA (sf).

FINANCE IRELAND 2
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 AAA (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 AA (high) (sf)
-- 50% increase in PD, expected rating of AA (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 (sf)

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

Class D Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (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 AA (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 AA (low) (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)

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

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

FINANCE IRELAND 3
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 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 (high) (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 AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 (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 (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 AA (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 AA (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)

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

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BBB (low) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (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 (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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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: 10 September 2020 (Finance Ireland 2); 9 June 2021 (Finance Ireland 3)

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.

-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- 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.
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (28 November 2022) and European RMBS Credit Model v 1.0.0.0, https://www.dbrsmorningstar.com/research/405779/master-european-residential-mortgage-backed-securities-rating-methodology-and-jurisdictional-addenda.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- 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].