Press Release

DBRS Morningstar Confirms Credit Rating on Essence VIII B.V. Following Restructure

RMBS

October 23, 2023

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

The credit rating on the notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in October 2058.

The credit 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 a potential portfolio migration based on the additional purchase conditions.
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) credit rating level.
-- A structural amendment to the transaction executed on 16 October 2023 and effective as of the interest payment date on 23 October 2023 (the restructure date).

The transaction is a securitisation of Dutch prime first-lien mortgage loans originated by NIBC Bank N.V. (NIBC) and its subsidiaries. The portfolio currently comprises entirely buy-to-let mortgage loans; however, other product types are permitted in the context of additional receivables purchases, which may be in the form of substitutions, mortgage porting, or further advances, and are allowed under specific conditions until the earlier of the first optional redemption date (FORD) or the occurrence of a sequential amortisation trigger event. A small portion of construction mortgages is permitted in the portfolio, with the undrawn part of the mortgage funded by an equivalent amount of cash held at the Issuer account bank. The portfolio is serviced by NIBC, with Stater Nederland B.V. acting as sub-servicer.

Principal repayments on the Class A and Class B notes are made on a pro rata basis until the FORD in October 2027, at which point the coupon on the Class A notes will step up. The notes will switch to sequential from pro rata redemption if any of the sequential amortisation trigger events occur.

AMENDMENTS
-- The principal amount outstanding of the Class A, Class B, and Class C notes increased to EUR 874.5 million, EUR 81.0 million, and EUR 10.95 million, respectively. The proceeds of the Class A and Class B issuance have been used to purchase an additional portfolio of buy-to-let mortgage loans, while the proceeds of the Class C issuance have been credited to the reserve account and liquidity reserve account.
-- Sequential amortisation trigger events were amended to allow loans more than 90 days in arrears to increase up to 1.5% of the initial principal outstanding of the portfolio as of the restructure date before triggering sequential amortisation.
-- Sequential amortisation trigger events were amended to no longer be curable.
-- Mortgage loan criteria were amended to increase the maximum current loan to original market value of a buy-to-let mortgage loan to 85% from 75%, to increase the maximum interest-only portion of a mortgage loan to 65% of original market value from 50%, to increase the maximum single borrower exposure to EUR 20 million from EUR 10 million, and to increase the maximum exposure to properties that are not single-family houses or apartment rights to 11% from 10%.

PORTFOLIO PERFORMANCE
Delinquency levels have been low since closing. As of September 2023, loans two to three months in arrears were at 0.1% and there were no loans more than three months in arrears. There have been no foreclosures to date.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions at the B (sf) credit rating level to 5.6% and 10.2%, respectively. The base case PD and LGD assumptions are based on a potential migration of the current portfolio as per the additional purchase conditions set out in the transaction documents.

CREDIT ENHANCEMENT
Following the restructure date, credit enhancement to the Class A notes remains unchanged at 9.0%, stable since DBRS Morningstar’s initial credit rating. Credit enhancement consists of subordination of the Class B notes and the cash reserve.

The transaction benefits from a cash reserve, which covers senior fees, interest shortfall, and principal losses on the notes, and a liquidity reserve, which covers senior fees and interest on the notes. The cash reserve and liquidity reserve are both permitted to amortise and have been funded to their new target levels as of the restructure date.

Coöperatieve Rabobank U.A. (Rabobank) acts as the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of AA on Rabobank (which is one notch below the DBRS Morningstar public Long Term Critical Obligations Rating of AA (high)), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent to the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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

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

DBRS Morningstar’s credit rating does not address non-payment 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 rating is the “Master European Structured Finance Surveillance Methodology” (6 October 2023), https://www.dbrsmorningstar.com/research/421598/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.

DBRS Morningstar has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment. The other transaction legal documents have remained unchanged since the most recent credit rating action and as such, a review was not conducted.

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/421590/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 credit rating include investor reports and loan-level data provided by NIBC.

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

At the time of the initial credit rating, 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 this credit rating 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 28 October 2022, when DBRS Morningstar confirmed the credit rating on the Class A notes.

Information regarding DBRS Morningstar credit 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 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 for the Issuer at the B (sf) credit rating level are 5.6% and 10.2%, 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 assumption. For example, if the LGD increases by 50%, the credit rating on the Class A notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating on the Class A notes 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 credit rating on the Class A notes would be expected to fall to AA (low) (sf).

Class A 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 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 AA (high) (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 (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.

This credit rating is 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: 28 October 2020

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 credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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