DBRS Morningstar Upgrades and Confirms Ratings on Together Asset Backed Securitisation 2022-2ND1 plc

DBRS Ratings Limited (DBRS Morningstar) took the following rating actions on the notes issued by Together Asset Backed Securitisation 2022-2ND1 plc:

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

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

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

The transaction is a securitisations of second-lien mortgage loans, both owner-occupied and buy to let, backed by residential properties in the United Kingdom. The loans are originated and serviced by Blemain Finance Limited, Together Personal Finance Limited, and Together Commercial Finance Limited, all of which belong to the Together Group of companies. BCMGlobal Mortgage Services Limited acts as the standby servicer.

The legal final maturity date is at the payment date in February 2054.

PORTFOLIO PERFORMANCE
Delinquencies have been trending upwards since closing. As of the May 2023 payment date, 60- to 90-day delinquencies and 90+-day delinquencies were 0.8% and 0.9% of the outstanding portfolio balance, respectively.

As of the May 2023 payment date, cumulative repossessions were minimal and cumulative principal losses were zero. Loans in Law of Property Act receivership represented 0.1% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables for each transaction and updated its base case PD and LGD assumptions to 9.2% and 16.7%, respectively, from 7.7% and 37.4% at closing, respectively. The increase in the base case PD assumption reflects the increase in total delinquencies since closing while the decrease in the base case LGD reflects the version of the European RMBS Insight Model introduced in September 2022, which had a positive impact on the LGD overall as the market value declines were lower in regions such as London and Greater London, which compose the majority of the portfolio. For more information, please see the following press release: https://www.dbrsmorningstar.com/research/402865/dbrs-morningstar-publishes-final-european-rmbs-insight-uk-addendum.

CREDIT ENHANCEMENT AND RESERVES
The credit enhancement consists of the subordination of the junior notes. As of the May 2023 payment date, the CE increased since closing as follows:
-- CE to the Class A Loan Note to 33.0% from 26.5%
-- CE to the Class B to 28.0% from 22.5%
-- CE to the Class C to 20.2% from 16.2%
-- CE to the Class D to 12.8% from 10.2%
-- CE to the Class E to 6.2% from 5.0%
-- CE to the Class F to 4.4% from 3.5%

The transaction benefits from an amortising liquidity reserve, which covers senior fees, swap payments, and interest shortfalls on the Class A Loan Note. As of the May 2023 payment date, the liquidity reserve was at its target level of GBP 2.8 million.

Elavon Financial Services DAC, U.K. Branch (Elavon UK) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on Elavon UK, 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 Loan Note, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Natixis S.A., London Branch (Natixis) act as the swap counterparty for the transaction. DBRS Morningstar's private rating on Natixis is consistent with the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure using Intex DealMaker.

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.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is: “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.

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 loan-level data and investor reports provided by the Together group.

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 27 May 2022, when DBRS Morningstar finalised its provisional ratings on the rated notes.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on 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 base):
-- 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 9.2% and 16.7%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating on the Class A Loan Note would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Loan Note would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Loan Note would be expected to fall to A (high) (sf).

Class A Loan Note Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 (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 B Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (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 C 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 (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 D 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 (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in LGD, expected rating of B (low) (sf)
-- 25% increase in PD, expected rating of B (low) (sf)
-- 50% increase in PD, expected rating below B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (low) (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 GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 19 May 2022

DBRS Ratings Limited
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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.

-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model v.5.8.0.0, https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- European RMBS Insight: UK Addendum (16 September 2022), https://www.dbrsmorningstar.com/research/402864/european-rmbs-insight-uk-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.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions
-- 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.
-- 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].