DBRS Morningstar Finalizes Provisional Credit Ratings on Triangle Re 2023-1 Ltd.

DBRS, Inc. (DBRS Morningstar) finalized the following provisional credit ratings on the Mortgage Insurance-Linked Notes, Series 2023-1 (the Notes) issued by Triangle Re 2023-1 Ltd. (TMIR 2023-1 or the Issuer):

-- $105.7 million Class M-1A at BB (high) (sf)
-- $69.2 million Class M-1B at BB (low) (sf)
-- $54.7 million Class M-2 at B (high) (sf)
-- $18.2 million Class B-1 at B (sf)

The BB (high) (sf) credit rating reflects 5.30% of credit enhancement, provided by subordinated notes in the transaction. The BB (low) (sf), B (high) (sf), and B (sf) credit ratings reflect 4.35%, 3.60%, and 3.35% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

TMIR 2023-1 is Enact Mortgage Insurance Corporation’s (Enact's; the Ceding Insurer’s) sixth-rated Mortgage Insurance-Linked note transaction. The Notes are backed by reinsurance premiums, eligible investments, and related account investment earnings, in each case relating to a pool of MI policies linked to residential loans. The Notes are exposed to the risk arising from losses the ceding insurer pays to settle claims on the underlying MI policies.

TMIR 2023-1 transaction is backed by insured mortgage loans that have never been reported to the Ceding Insurer as 60 or more days delinquent since origination. The mortgage loans have a weighted average seasoning of eight months, with MI policies effective on or after July 2022. These loans have not been reported to be in a payment forbearance plan.

As of the Cut-Off Date, the pool of insured mortgage loans consists of 148,603 fully amortizing first-lien fixed- and variable-rate mortgages. They all have been underwritten to a full documentation standard, have original loan-to-value ratios (LTVs) less than or equal to 100%, and one loan has been reported to the Ceding Insurer to be modified.

On March 1, 2020, a new master policy was introduced to conform to government-sponsored enterprises’ revised rescission relief principles under the Private Mortgage Insurer Eligibility Requirements (PMIER) guidelines (see the Representations and Warranties section for more detail). All of the mortgage loans (by Cut-Off Date) are insured under the new master policy.

On March 1, 2020, a new master policy was introduced to conform to GSEs’ revised rescission relief principles under the Private Mortgage Insurer Eligibility Requirements guidelines (see the Representations and Warranties section of the related report for more detail). All of the mortgage loans (by Cut-Off Date) are insured under the new master policy.

On the Closing Date, the Issuer will enter into the Reinsurance Agreement with the Ceding Insurer. As per the agreement, the Ceding Insurer will get protection for the funded portion of the MI losses. In exchange for this protection, the Ceding Insurer will make premium payments related to the underlying insured mortgage loans to the Issuer.

The Issuer is expected to use the proceeds from the sale of the Notes to purchase certain eligible investments that will be held in the reinsurance trust account. The eligible investments are restricted to U.S. Treasury money market funds and securities rated at least AAA-mf by Moody's or AAAm by S&P. Unlike other residential mortgage-backed security (RMBS) transactions, cash flow from the underlying loans will not be used to make any payments; rather, in mortgage insurance-linked Notes (MILN) transactions, a portion of the eligible investments held in the reinsurance trust account will be liquidated to make principal payments to the noteholders and to make loss payments to the Ceding Insurer when claims are settled with respect to the MI policy.

The Issuer will use the investment earnings on the eligible investments, together with the Ceding Insurer’s premium payments, to pay interest to the noteholders.

The calculation of principal payments to the Notes will be based on the reduction in aggregate exposed principal balance on the underlying MI policy that is allocated to the Notes. The subordinate Notes will receive their pro rata share of available principal funds if the minimum credit enhancement test and the delinquency test are satisfied. The minimum credit enhancement test will be satisfied if the subordinate percentage is at least 7.25%. For this transaction, the delinquency test will be satisfied if the three-month average of 60+ days delinquency percentage is below 75% of the subordinate percentage. Additionally, if these performance tests are met and the subordinate percentage is greater than 7.2500%, then the subordinate Notes will be entitled to accelerated principal payments equal to 2 times (x) the subordinate principal reduction amount, until the subordinate percentage comes down to the target credit enhancement of 7.25%.

The coupon rates for the Notes are based on the Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available; please see the Offering Circular for more details. DBRS Morningstar did not run interest rate stresses for this transaction, as the interest is not linked to the performance of the underlying loans. Instead, interest payments are funded via (1) premium payments that the Ceding Insurer must make under the reinsurance agreement and (2) earnings on eligible investments.

On the Closing Date, the ceding insurer will establish a cash and securities account, the premium deposit account. In case of the ceding insurer’s default in paying coverage premium payments to the Issuer, the amount available in this account will be used to make interest payments to the noteholders.

TMIR 2023-1 transaction is issued with a 10-year term. The Notes are scheduled to mature on November 25, 2033, but will be subject to early redemption at the option of the Ceding Insurer (1) for a 10% clean-up call or (2) on or following the payment date in November 2028, among others. The Notes are also subject to mandatory redemption before the scheduled maturity date upon the termination of the Reinsurance Agreement. (Additionally, there is a provision for the Ceding Insurers to issue a tender offer to reduce all or a portion of the outstanding Notes.)

The Ceding Insurer of the transaction is Enact. The Bank of New York Mellon (rated AA (high) with a Stable trend by DBRS Morningstar) will act as the Indenture Trustee, Paying Agent, Note Registrar, and Reinsurance Trustee.

The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2023 Update,” published September 28, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

The credit ratings reflect transactional strengths that include the following:
-- Agency-eligible loans.
-- High-quality credit and loan attributes.
-- MI termination.
-- A well-diversified pool.
-- Alignment of interest.

The transaction also includes the following challenges:
-- Counterparty exposure.
-- A weak representation and warranties framework.
-- Limited third-party due diligence.
-- Eligible investment losses.

The full description of the strengths, challenges, and mitigating factors is detailed in the related report.

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. The associated financial obligations for each of the rated notes are the related Interest Payment Amount and Principal Payment Amount.

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
Environmental (E) Factors
There were no Environmental factors that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factors that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factors that had a relevant or significant 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 (04 July 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (31 August 2023) https://www.dbrsmorningstar.com/research/420108/rmbs-insight-1.3:-u.s.-residential-mortgage-backed-securities-model-and-rating-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

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

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023), https://www.dbrsmorningstar.com/research/413297

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://www.dbrsmorningstar.com/research/420333

-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://www.dbrsmorningstar.com/research/414076

-- Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://www.dbrsmorningstar.com/research/420106

-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://www.dbrsmorningstar.com/research/420107

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].