Morningstar DBRS Confirms Credit Ratings on Finance Ireland RMBS No. 3 DAC

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the notes issued by Finance Ireland RMBS No. 3 DAC (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (sf)

The credit rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in June 2061. The credit ratings on the Class B, Class C, Class D, and Class E notes address the ultimate payment of interest and principal on or before the legal final maturity date while the most junior class and timely payment of interest while the most senior class outstanding. The credit rating on the Class F notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations 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; and
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels.

The transaction is a static securitisation of Irish first-lien residential mortgages originated primarily by Finance Ireland Credit Solutions DAC and Pepper Finance Corporation (Ireland) DAC, which also acts as the servicer of the portfolio. The transaction closed in June 2021 with an initial portfolio balance of EUR 297.5 million.

PORTFOLIO PERFORMANCE
As of the March 2024 payment date, loans one to two and two to three months in arrears represented 0.5% and 0.1% of the outstanding portfolio balance, respectively, while loans three or more months in arrears were 0.9%. There have not been any repossessions or cumulative losses reported to date.

PORTFOLIO ASSUMPTIONS AND KEY 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 1.9% and 10.0%, 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 improved to 17.9% and 30.3%, respectively.

CREDIT ENHANCEMENT
Credit enhancement to the rated notes is provided by the subordination of the junior classes and the general reserve fund. As of the March 2024 payment date, credit enhancement available to the Class A, Class B, Class C, Class D, Class E, and Class F notes was 29.4%, 19.2%, 13.6%, 8.5%, 5.1%, and 3.4%, respectively, up from 20.5%, 13.3%, 9.4%, 5.8%, 3.4%, and 2.2% at the time of the last annual review, respectively.

The transaction benefits from a liquidity reserve fund and a general reserve fund, providing liquidity support and credit support to the structure, respectively.

The liquidity reserve fund is available to cover senior fees and interest on the Class A notes and is currently at its target level of EUR 1.13 million, equal to 0.75% of the outstanding principal balance of the Class A notes, and subject to a floor at EUR 1.0 million.

The general reserve fund is available to cover senior fees, interest, and principal (via the principal deficiency ledgers) on the rated notes. The general reserve fund is currently at its target level of EUR 339,975, equal to 0.75% of the outstanding principal balance of the rated notes minus the liquidity reserve target amount.

Elavon Financial Services DAC (Elavon) acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating on Elavon, 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 rated notes in the transaction, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA acts as the swap provider for the transaction. Morningstar DBRS' public Long Term Critical Obligations Rating of AA (high) on BNP Paribas SA is above the first rating threshold as described in Morningstar DBRS' "Derivative 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 transaction 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 structures 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.

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 U.S. Bank Global Corporate Trust Limited (as the cash manager) 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 impact 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.

The last credit rating action on this transaction took place on 3 May 2023, when Morningstar DBRS confirmed its credit rating on the Class A notes at AAA (sf) and upgraded its credit ratings on the Class B, Class C, Class D, Class E, and Class F notes to AA (high) (sf), AA (high) (sf), AA (sf), A (low) (sf), and BBB (sf), respectively, from AA (sf), AA (low) (sf), A (sf), BBB (low) (sf), and BB (high) (sf), respectively.

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 1.9% and 10.0%.

Class A 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 B 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 AA (high) (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 (high) (sf)

Class C 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 AA (high) (sf)
-- 50% increase in PD, expected credit rating of AA (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (sf)

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

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 50% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD, expected credit rating of BB (high) (sf)
-- 50% increase in PD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 9 June 2021

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 v7.0.1.0, https://dbrs.morningstar.com/research/430103.
-- European RMBS Insight: Irish Addendum (22 April 2024), https://dbrs.morningstar.com/research/431544.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023), https://dbrs.morningstar.com/research/420754.
-- 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].