DBRS Morningstar Confirms Ratings on Dublin Bay Securities 2018-MA1 DAC

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the bonds issued by Dublin Bay Securities 2018-MA1 DAC (the Issuer) as follows:

-- Class A1 at AAA (sf)
-- Class A2A at AAA (sf)
-- Class A2B at AAA (sf)
-- Class S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at A (sf)
-- Class E at BBB (high) (sf)
-- Class F at BB (high) (sf)
-- Class Z1 at BB (low) (sf)

DBRS Morningstar also removed the ratings of the rated notes from Under Review with Negative Implications (UR-Neg.), where they were placed on 9 June 2023.

The ratings for Classes A1 through S address the timely payment of interest and ultimate payment of principal by the final legal maturity date in September 2053. The ratings for the other classes of notes address the ultimate payment of interest and principal by the final legal maturity date. The Class B notes were tested for timely payment of interest once it becomes the most senior class of notes in this transaction.

The rating actions are the result of the review of the transaction following DBRS Morningstar’s finalisation of its “European RMBS Insight: Irish Addendum” (the Methodology) and corresponding European RMBS Insight Model (the Model) on 5 June 2023, and the end of the review period for the transaction, which began on 9 June 2023. For more details, please see the following press release: https://www.dbrsmorningstar.com/research/415601/dbrs-morningstar-places-ratings-on-six-irish-rmbs-transactions-under-review-following-release-of-european-rmbs-insight-irish-addendum.

The Methodology presents the criteria for which Irish residential mortgage-backed securities (RMBS) ratings, and, where relevant, Irish covered bonds ratings, are assigned and/or monitored. The Methodology superseded DBRS Morningstar’s “Irish Residential Mortgage Addendum” to its “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda” published on 28 November 2022, and introduced a new proprietary credit model to forecast the expected default rates and losses for portfolios of Irish residential mortgages. The Model combines a loan scoring approach (LSA) and dynamic delinquency migration matrices (DMM) to calculate loan-level defaults and losses. The LSA and DMM were developed using jurisdictional specific data on loans, borrowers, and collateral types. In addition, the Model uses a house price approach to generate market value decline assumptions. For more details, please see the following press release: https://www.dbrsmorningstar.com/research/415309/dbrs-morningstar-publishes-final-methodology-on-european-rmbs-insight-irish-addendum-and-withdraws-irish-residential-mortgage-addendum-to-master-european-rmbs-rating-methodology.

Along with the material changes introduced in the Methodology, the credit rating actions are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the June 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 Issuer is a bankruptcy-remote special-purpose vehicle (SPV) incorporated in the Republic of Ireland (Ireland). The Issuer used the proceeds of the notes to fund the purchase of Irish residential mortgage loans originated by Bank of Scotland plc (Bank of Scotland) and secured by properties in Ireland. In September 2018, the Bank of Scotland sold the mortgage portfolio to Erimon Home Loans Ireland Limited, a bankruptcy-remote SPV wholly owned by Barclays Bank PLC. Pepper Finance Corporation acts as the servicer of the mortgage portfolio during the life of the transaction, while CSC Capital Markets (Ireland) Limited acts as the replacement servicer facilitator.

PORTFOLIO PERFORMANCE
As of June 2023, loans two to three months in arrears represented 0.9% of the outstanding portfolio balance, up from 0.3% in September 2022. The 90+ days delinquency ratio increased to 6.8% from 4.3% during the same period, and the cumulative default and loss ratios each remained at 0.0%.

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 to 12.5% and 13.7%, respectively. The increase of the base-case PD assumptions is driven by the new Irish RMBS Insight model, which applies an additional penalty on all loans originated before 2010. The transaction is mostly composed of such loans.

CREDIT ENHANCEMENT
As of June 2023, credit enhancement for the Class A1, Class A2A, and Class A2B notes was 26.9%, up from 20.8% in September 2022. In the same period, the credit enhancements for the Class B, Class C, Class D, Class E, Class F, and Class Z1 notes were 22.2%, 19.1%, 15.4%, 12.9%, 10.4%, and 9.6%, respectively, up from 16.6%, 13.8%, 10.6%, 8.4%, 6.2%, and 5.5%, respectively. The material increases in credit enhancement from prior year are driven by the switch to sequential amortisation of the notes from pro rata amortisation, upon the occurrence of the sequential amortisation trigger event.

The Class S notes are excess spread notes (i.e., they are not collateralised and do not have any credit enhancement). The Class S notes are redeemed under the pre-enforcement revenue priority of payments, but principal receipts can be used to cure shortfalls in the required payments for the Class S notes.

The protected amortisation reserve fund of EUR 8.0 million provided credit and liquidity support to the Class A2A and Class A2B notes under the pro rata amortisation scenario, to ensure that the scheduled payments are met. It was fully released after the occurrence of the sequential amortisation trigger event.

The transaction also benefits from a liquidity reserve fund of EUR 2.4 million, which is available to provide liquidity support to the senior fee and interest payments on the Class A and Class S notes.

Citibank, N.A., London Branch (Citibank) is the Issuer Account Bank, Paying Agent, and Cash Manager. Based on DBRS Morningstar’s private rating on Citibank, 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 Citibank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The ratings on the Class E, Class F, and Class Z1 notes materially deviate from the higher ratings implied by the quantitative model. DBRS Morningstar considers a material deviation to be a rating difference of three or more notches between the assigned rating and the rating implied by a quantitative model that is a substantial component of a rating methodology; in this case, the ratings also reflect qualitative factors that are not precisely captured in the quantitative model. The Class E, Class F, and Class Z1 notes are the most junior tranches in the transaction and, as a result, will be more exposed to any potential performance deterioration.

DBRS Morningstar’s credit ratings on the Class A1, Class A2A, Class A2B, Class S, Class B, Class C, Class D, Class E, Class F, and Class Z1 notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings on the Class A1, Class A2A, Class A2B, Class S, Class B, Class C, Class D, Class E, Class F, and Class Z1 also addresses the credit risk associated with the increased rate of interest applicable to the rated notes if the rated notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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.

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/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 euros 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/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.

The sources of data and information used for these credit ratings include investor reports provided by Citibank 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 credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the 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 this transaction took place on 9 June 2023, when DBRS Morningstar placed the ratings on the rated notes UR-Neg. Prior to that, on 16 December 2022, DBRS Morningstar confirmed its ratings on the Class A1, Class A2A, Class A2B, Class S, Class B, Class C, Class D, Class E, Class F, and Class Z1 notes at AAA (sf), AAA (sf), AAA (sf), AAA (sf), AA (sf), A (high) (sf), A (sf), BBB (high) (sf), BB (high) (sf), and BB (low) (sf), respectively.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the credit 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 are 12.5% and 13.7%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, if the LGD increases by 50%, the rating on the Class A1 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 A1 notes would be expected to fall to A (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A1 notes would be expected to fall to A (sf).

Class A1 Risk Sensitivity:
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD, expected rating of AA (low) (sf)
-- 50% increase of the PD, expected rating of A (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of A (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (sf)

Class A2 Risk Sensitivity:
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD, expected rating of AA (low) (sf)
-- 50% increase of the PD, expected rating of A (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of A (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (sf)

Class S Risk Sensitivity:
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD, expected rating of AA (low) (sf)
-- 50% increase of the PD, expected rating of A (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of A (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (sf)

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

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

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

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

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

Class Z1 Risk Sensitivity:
-- 25% increase of the LGD, expected rating of BB (low) (sf)
-- 50% increase of the LGD, expected rating of BB (low) (sf)
-- 25% increase of the PD, expected rating of BB (low) (sf)
-- 50% increase of the PD, expected rating of BB (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of BB (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of BB (low) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of BB (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of BB (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://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 Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 22 October 2018

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit 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 (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/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 (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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.
-- 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.
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight Model v6.0.0.0,
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- European RMBS Insight: Irish Addendum (5 June 2023),
https://www.dbrsmorningstar.com/research/415306/european-rmbs-insight-irish-addendum.

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].