DBRS Morningstar Upgrades and Confirms Credit Ratings on Tower Bridge Funding 2021-1 plc and Tower Bridge Funding 2021-2 plc

DBRS Ratings Limited (DBRS Morningstar) took the following credit rating actions on the notes issued by Tower Bridge Funding 2021-1 plc (Tower Bridge Funding 2021-1) and Tower Bridge Funding 2021-2 plc (Tower Bridge Funding 2021-2):

Tower Bridge Funding 2021-1:
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from AA (sf)
-- Class D Notes upgraded to AA (low) (sf) from A (high) (sf)

Tower Bridge Funding 2021-2:
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C confirmed at AA (sf)
-- Class D confirmed at A (sf)

The credit ratings on the Class A and Class B notes in both transactions address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date. The credit 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 junior, and timely payment of interest while the senior-most class outstanding.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the July 2023 payment date for Tower Bridge Funding 2021-1 and May 2023 payment date for Tower Bridge Funding 2021-2.
-- 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 credit rating levels.

The transactions are securitisations of mortgage loans originated by Belmont Green Finance Limited (BGFL), a specialist UK mortgage lender that offers a full suite of mortgage products including owner-occupied, buy-to-let, adverse-credit-history, and interest-only loans. The securitised mortgage portfolio comprises first-lien home loans originated by BGFL through its Vida Homeloans brand. BGFL is the named mortgage portfolio servicer but delegates its day-to-day servicing activities to Computershare Limited (formerly known as Homeloan Management Limited). The legal final maturity date is at the July 2064 payment date for Tower Bridge Funding 2021-1 and at the November 2063 payment date for Tower Bridge Funding 2021-2.

PORTFOLIO PERFORMANCE
The delinquencies have been on an increasing trend since the last annual review, with loans two to three months in arrears and more than three months in arrears being as follows:
--Tower Bridge Funding 2021-1: as of the June 2023 cut-off date, 0.9% and 2.7%, respectively, up from 0.7% and 1.7%, respectively, as of the September 2022 cut-off date.
--Tower Bridge Funding 2021-2: as of the April 2023 cut-off date, 0.6% and 1.8%, respectively, up from 0.2% and 1.4%, respectively, as of the October 2022 cut-off date.

Cumulative losses of the initial portfolio balances remain immaterial in both transactions.

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 as follows:
-- Tower Bridge Funding 2021-1: 6.5% and 8.0%, respectively, compared with 5.9% and 8.2%, respectively, at the last annual review; and
-- Tower Bridge Funding 2021-2: 5.7% and 10.0%, respectively, compared with 5.2% and 10.3%, respectively, at the last annual review.
The main driver for the increase in the base-case PD is the increase in the delinquency levels in both transactions.

CREDIT ENHANCEMENT
In each transaction, the credit enhancement (CE) to all the notes consists of the subordination of their respective junior notes and the general reserve fund.
As of the July 2023 payment date, the CE to the notes in Tower Bridge Funding 2021-1 had increased since the October 2022 payment date as follows:
-- Class A Notes to 31.3% from 20.6%;
-- Class B Notes to 23.2% from 15.2%;
-- Class C Notes to 15.5% from 10.2%; and
-- Class D Notes to 9.2% from 6.0%.

As of the May 2023 payment date, the CE to the notes in Tower Bridge Funding 2021-2 had increased since the November 2022 payment date as follows:
-- Class A to 23.5% from 18.4%;
-- Class B to 17.2% from 13.5%;
-- Class C to 11.5% from 9.0%; and
-- Class D to 7.1% from 5.6%.

Each transaction benefits from a non-amortising reserve fund covering senior fees, interest, and principal (via the principal deficiency ledgers) on the rated notes and an amortising liquidity reserve fund covering senior fees and interest on the Class A and Class B notes. The general reserve and the liquidity reserves were at their target level in each transaction as follows:
-- Tower Bridge Funding 2021-1: as of the July 2023 payment date, approximately GBP 8.8 million and approximately GBP 2.7 million, respectively.
-- Tower Bridge Funding 2021-2: as of the May 2023 payment date, GBP 7.5 million and approximately GBP 3.3 million, respectively.

Elavon Financial Services DAC, UK Branch (Elavon UK) and Citibank N.A., London Branch (Citibank London) act as the account banks for Tower Bridge Funding 2021-1 and Tower Bridge Funding 2021-2, respectively. Based on the DBRS Morningstar private ratings of Elavon UK and Citibank London, the downgrade provisions outlined in the transactions’ documents and other mitigating factors inherent in the transactions’ structures, DBRS Morningstar considers the risk arising from the exposure to the account banks to be consistent with the credit ratings assigned to the Class A and Class B notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander, S.A. (Banco Santander) acts as the swap counterparty for both transactions. DBRS Morningstar's public Long-Term Critical Obligations Rating of Banco Santander at AA (low) is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings on notes also address the credit risk associated with the increased rate of interest applicable to notes if the notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction document(s).

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
DBRS Morningstar considers the help-to-buy (HTB) scheme applicable to a proportion of the portfolio of each transaction to be a relevant social factor (social impact of products and services) as outlined in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings”. The HTB scheme is credit negative, but DBRS Morningstar does not consider this to be a significant social factor given the generally limited exposure to HTB loans in these transactions.

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/416784/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 credit 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 credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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.

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.

The sources of data and information used for these credit ratings include loan-level data and investor reports provided by U.S. Bank Trustees Limited.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. DBRS Morningstar applied additional cash flow stresses in its credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on these transactions took place on:
-- Tower Bridge Funding 2021-1: 19 December 2022, when DBRS Morningstar confirmed its credit ratings on the Class A and Class B notes at AAA (sf) and AA (high) (sf), respectively, and upgraded its credit ratings on the Class C and Class D notes to AA (sf) and A (high) (sf), respectively, from A (high) (sf) and BBB (high) (sf), respectively.

--Tower Bridge Funding 2021-2: 27 April 2023, when DBRS Morningstar discontinued its credit rating on the Class X notes and, more recently, on 19 December 2022, when DBRS Morningstar confirmed its credit ratings on the Class A and Class B notes at AAA (sf) and AA (high) (sf), respectively, and upgraded its credit ratings on the Class C, Class D, and Class X notes to AA (sf), A (sf), and AAA (sf), respectively, from A (high) (sf), BBB (high) (sf), and AA (sf), respectively.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit 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 at the B (sf) rating level are as follows:
-- Tower Bridge Funding 2021-1: 6.5% and 8.0%, respectively.
-- Tower Bridge Funding 2021-2: 5.7% and 10.0%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumptions. For example, in Tower Bridge Funding 2021-1, if the LGD increases by 50%, the credit 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 credit 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 credit rating of the Class A Notes would be expected to remain at AAA (sf).

Tower Bridge Funding 2021-1:
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

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

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

Tower Bridge Funding 2021-2:
Class A Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

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

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

Class D Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (sf)
-- 50% increase in LGD, expected credit rating of A (low) (sf)
-- 25% increase in PD, expected credit rating of A (low) (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (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://registers.esma.europa.eu/cerep-publication. 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 credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Assistant Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Dates:
--Tower Bridge Funding 2021-1: 9 March 2021
--Tower Bridge Funding 2021-2: 28 June 2021

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

The credit rating methodologies used in the analysis of these transactions 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.6.0.0.0,
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology
--European RMBS Insight: UK Addendum (11 August 2023),
https://www.dbrsmorningstar.com/research/419141/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 (16 June 2023),
https://www.dbrsmorningstar.com/research/415976/derivative-criteria-for-european-structured-finance-transactions
--Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/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 (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].