Morningstar DBRS Confirms Credit Ratings on Burlington Mortgages No.2 DAC

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by Burlington Mortgages No.2 DAC (the Issuer) as follows:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)

The credit ratings on the Class A Notes address the timely payment of interest and ultimate repayment of principal on or before the legal final maturity date in September 2062.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the March 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- No revolving period termination event has occurred; and
-- Current available credit enhancement to the rated notes to cover the expected losses at the AAA (sf) credit rating level.

The transaction is a securitisation of a portfolio of prime Irish residential mortgage loans granted by EBS d.a.c. and its fully owned subsidiary, Haven Mortgages Limited. The originators, which are part of the Allied Irish Banks, p.l.c. (AIB) banking group, also service their respective portfolios. The transaction closed in April 2023 with an initial portfolio balance of EUR 5,079.4 million and includes a 24-month revolving period scheduled to end in March 2025.

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, loans that were one month and two months in arrears represented 0.5% and 0.2% of the outstanding portfolio balance, respectively, while loans three or more months in arrears represented 0.2%. There have not been any repossessions to date.

PORTFOLIO ASSUMPTIONS AND KEY CREDIT RATING DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base-case PD and LGD assumptions to 2.0% and 10.6%, respectively. The higher loss assumptions at the base-case level result from the release of Morningstar DBRS' "European RMBS Insight: Irish Addendum" methodology in June 2023. At the AAA (sf) credit rating level, the PD and LGD assumptions have improved to 18.4% and 29.9%, respectively.

CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the Class A Notes. As of the March 2024 payment date, credit enhancement to the Class A Notes remained unchanged from the initial credit rating date because of the revolving period, with credit enhancement of 80.5% for the Class A1 Notes and 13.5% for the Class A2 Notes.

The transaction benefits from liquidity support through a liquidity reserve fund, funded at closing to EUR 32.95 million through subordinated loans granted by the sellers. The liquidity reserve, which has a target balance equal to 0.75% of the outstanding Class A Notes' balance, is available to cover senior expenses and interest payments on the Class A Notes. As of the March 2024 payment date, the liquidity reserve was at its target balance of EUR 32.95 million.

AIB acts as the account bank for the transaction. Based on the reference credit rating of "A" on AIB, one notch below the Morningstar DBRS Long-Term Critical Obligations Rating of A (high); the downgrade provisions outlined in the transaction documents; and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the Class A Notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

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

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transactions documents that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of defaults to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the term under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030.

Morningstar DBRS 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 March 2024), https://dbrs.morningstar.com/research/429051.

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

Morningstar DBRS 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 continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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://dbrs.morningstar.com/research/421590.

The sources of data and information used for these credit ratings include investor reports provided by AIB and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

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

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

This is the first credit rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- Morningstar DBRS 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 2.0% and 10.6%, respectively.

Class A1 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 AAA (sf)

Class A2 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 AAA (sf)

For further information on Morningstar DBRS 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 Morningstar DBRS 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: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 17 April 2023

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://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024), https://dbrs.morningstar.com/research/429051.
-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight Model v6.0.2.1, https://dbrs.morningstar.com/research/430103.
-- European RMBS Insight: Irish Addendum (5 June 2023), https://dbrs.morningstar.com/research/415306.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

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