DBRS Morningstar Confirms Rating on Essence VII B.V.

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AAA (sf) rating on the Class A Notes issued by Essence VII B.V. (the Issuer).

The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in May 2057.

The rating action follows an annual review of the transaction and is 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 the AAA (sf) rating level; and
-- No revolving termination events to date.

The transaction is a securitisation of Dutch prime residential mortgages originated by NIBC Bank N.V. (NIBC) and its subsidiaries. NIBC services the portfolio while Stater Nederland B.V., Quion Hypotheekbemiddeling B.V., Quion Hypotheekbegeleiding B.V., and Quion Services B.V. act as subservicers.

The transaction is in its seven-year revolving period, scheduled to terminate on the payment date in May 2024. The end of the revolving period coincides with a step-up in the coupon as well as the first optional redemption date.

PORTFOLIO PERFORMANCE
As of March 2023, two- to three-month arrears represented 0.1% of the outstanding portfolio balance and the 90+-day delinquency ratio was 0.1%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions at the B (sf) rating level to 8.6% and 10.2% respectively.

CREDIT ENHANCEMENT
As of the March 2023 payment date, credit enhancement to the Class A Notes was 17.1%, up from 14.0% at the time of DBRS Morningstar’s initial rating.

Amortisation of the notes during the revolving period is permitted if the replenishment available amount is not applied toward the purchase of new receivables on a payment date or is reserved for the purchase of new receivables on two consecutive payment dates. This has been the case since the April 2022 payment date, with proceeds applied toward the sequential redemption of the Class A and Class B Notes.

The transaction benefits from a reserve fund, which covers senior fees, interest shortfall, and principal losses on the Class A Notes as well as a liquidity reserve, which covers senior fees and interest on the Class A Notes. The reserve fund is permitted to amortise, provided that the 90+-day delinquency ratio and the cumulative realised loss percentages are lower than 3% and 2%, respectively.

As of March 2023, the reserve fund and liquidity reserve are both at their target levels of EUR 3.7 million and EUR 1.8 million, respectively.

ABN AMRO Bank N.V. (ABN AMRO) acts as the account bank for the transaction. Based on the account bank reference rating of AA (low) on ABN AMRO (which is one notch below its 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
Social (S) Factors
DBRS Morningstar considers the Nationale Hypotheek Garantie (NHG) guarantee, which backs 9.9% of the current collateral pool, to be a relevant social factor (Social Impact of Product & Services) as outlined in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings”. DBRS Morningstar assumed reduced loss severity for loans backed by an NHG guarantee as outlined in its “European RMBS Insight: Dutch Addendum” methodology. This is credit positive but does not materially affect the rating. Please see 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.

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” (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 transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

A review of the amended legal documents was conducted in the context of an amendment executed on 21 April 2023, where two additional accounts held at ING Bank N.V. were added to the collection foundation. A review of the remaining legal documents was not conducted as the relevant 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 NIBC 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 assessments. 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 this transaction took place on 13 May 2022, when DBRS Morningstar confirmed its rating on the Class A Notes at AAA (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 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 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 8.6% and 10.2%, 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 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 remain at AAA (sf).

Class A Notes 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) For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://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.

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: 22 May 2017

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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 (7 February 2023),
https://www.dbrsmorningstar.com/research/409485/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.
-- 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.
-- European RMBS Insight Methodology (27 March 2023) and European Asset RMBS Insight Model v5.8.0.0,
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- European RMBS Insight: Dutch Addendum (24 April 2023),
https://www.dbrsmorningstar.com/research/413034/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].