DBRS Morningstar Assigns Provisional Credit Ratings to NLT 2023-1 Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional credit ratings to the Mortgage-Backed Notes, Series 2023-1 (the Notes) to be issued by NLT 2023-1 Trust (the Trust) as follows:

-- $125.8 million Class A-1 at AAA (sf)
-- $10.9 million Class A-2 at AA (sf)
-- $8.1 million Class A-3 at A (sf)
-- $6.8 million Class M-1 at BBB (sf)
-- $4.2 million Class B-1 at BB (sf)
-- $3.7 million Class B-2 at B (sf)

The AAA (sf) rating on the Class A-1 Notes reflects 27.00% of credit enhancement provided by the subordinate notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 20.65%, 15.95%, 12.00%, 9.55%, and 7.40% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of seasoned performing and reperforming first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 547 loans with a total principal balance of $172,334,522, which includes the deferred principal balance of $1,278,010, as of the Cut-Off Date (October 31, 2023).

DBRS Morningstar calculated the portfolio to be approximately 40 months seasoned, though the ages of the loans are quite diverse, ranging from three months to 358 months. The majority of the loans (73.1%) had origination guideline or document deficiencies, which prevented them from being sold to Fannie Mae, Freddie Mac, or another purchaser, and the loans were subsequently put back to the sellers. In its analysis, DBRS Morningstar assessed such defects and applied certain penalties, consequently increasing expected losses on the mortgage pool.

As of the Cut-Off Date, 97.5% of the loans are current (including 0.5% bankruptcy-performing loans), and 2.0% of the loans are 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method. Under the MBA delinquency method, 75.2% and 89.6% of the mortgage loans have been zero times 30 days delinquent for the past 24 months and 12 months, respectively.

In the portfolio, 10.2% of the mortgage loans are modified. The modifications happened more than two years ago for 52.2% of the loans that DBRS Morningstar classified as modified. Within the pool, 44 mortgages have an aggregate non-interest-bearing deferred amount of $1,278,010, which comprises 0.7% of the total principal balance.

NLT 2023-1 represents the first rated scratch & dent securitization for the Sponsor, Nomura Corporate Funding Americas, LLC (NCFA), with mostly seasoned performing and reperforming residential mortgage loans. The Sponsor is registered with the U.S. Securities and Exchange Commission and incorporated in the state of Delaware. NCFA has been purchasing reperforming loans (RPLs) since 2014.

The Sellers, NWL Company, LLC and NNPL Trust Series 2012-1, acquired the mortgage loans from multiple originators. The Sellers will then contribute the loans to the Trust through an affiliate, Nomura Asset Depositor Company, LLC. (the Depositor). As the Sponsor, NCFA or one of its majority-owned affiliates will acquire and retain a 5% eligible vertical interest in each class of Notes (other than the Class R Notes) and the Trust certificate to satisfy the credit risk retention requirements. The loans were originated and previously serviced by various entities.

As of the Cut-Off Date, all the loans are being serviced by Fay Servicing, LLC. There will not be any advancing of delinquent principal and interest (P&I) on any mortgages by the Servicer or any other party to the transaction; however, the Servicer is obligated to make advances in respect of homeowners association fees in super lien states and, in certain cases, taxes and insurance as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-Off Date, the Class XS or the redemption right holder may purchase all of the mortgage loans and real estate owned properties from the Issuer, as long as the aggregate proceeds meet a minimum price that meets or exceeds par plus interest.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Notes, but such shortfalls on Class A-3 and more subordinate P&I bonds will not be paid from principal proceeds until the more senior classes are retired.

The credit ratings reflect transaction strengths that include the following:
-- Collateral credit quality;
-- Satisfactory third-party due diligence review;
-- Relatively seasoned loans; and
-- Structural features which may provide timely interest payment to the Class A-1 and A-2 Notes.

The transaction also includes the following challenges:
-- Representations and warranties framework;
-- No service advances of delinquent principal and interest; and
-- Missing assignments or endorsements for certain loans as of the Cut-Off Date.

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

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. The associated financial obligations for the rated Notes are the Interest Payment Amount, Interest Carryforward Amount, and Note Amount.

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. For example, in this transaction, DBRS Morningstar's ratings do not address the payment of any cap carryover amounts.

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 (July 4, 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 (August 31, 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 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, 2023; https://www.dbrsmorningstar.com/research/425081)
-- 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].