Morningstar DBRS Assigns Credit Ratings to Fastnet Securities 19 DAC

DBRS Ratings GmbH (Morningstar DBRS) assigned credit ratings to the following classes of notes issued by Fastnet Securities 19 DAC (Fastnet 19 or the Issuer):

-- Class A1 notes at AAA (sf)
-- Class A2 notes at AAA (sf)

The credit ratings of the Class A1 and Class A2 notes (together, the Class A notes) address the timely payment of interest and the ultimate payment of principal on or before the final maturity.

CREDIT RATING RATIONALE
The transaction features an amortising liquidity reserve fund (LRF) equal to 1% of the Class A notes outstanding balance to support the payment of senior expenses and Class A notes interest. Further credit enhancement is provided through a nonamortising general reserve fund (GRF), which is equal to 1% of the initial balance of the collateralised notes minus the balance of the LRF.

The credit enhancement is calculated as the overcollateralisation provided by the portfolio, originated by Permanent TSB Plc (PTSB) and the GRF. At closing, credit enhancement is 10.1% for the Class A notes. In case of an event of default, the Class A notes are repaid pari passu and pro rata; otherwise, they are paid sequentially (i.e., the Class A2 notes are not repaid until the Class A1 notes have been fully redeemed). Additionally, the transaction documents include repurchase conditions, wherein if repurchased loans exceed EUR 100 million, the Class A notes are paid pari passu and pro rata; otherwise, they are paid sequentially.

As of 14 June 2024, the portfolio consisted of 6,241 loans granted to 6,124 borrowers with an aggregate outstanding balance of EUR 1.5 billion. The weighted-average (WA) seasoning of the portfolio was 2.5 years, with a WA remaining term to maturity of 24.4 years. The Morningstar DBRS-calculated WA indexed loan-to-value ratio (LTV) of the portfolio was at 64.1%. The portfolio consists of only owner-occupied annuity loans, yielding a WA coupon of 3.3% and all are repaying loans. About 51.1% of the loans are granted on properties located in Dublin. As of the cut-off date, there were no loans more than 30 days past due.

The portfolio consists entirely of fixed-rate loans mostly reverting to Standard Variable Rate (SVR) (only a negligible portion of 0.16% reverts to ECB base rate), with a WA time to reset of 2.7 years. The Class A1 and Class A2 notes bear initially a fixed-rate coupon, which will switch to floating-rate on the payment dates corresponding to December 2026 and December 2027, respectively.

Morningstar DBRS’ cash flow analysis included scenarios of potential interest rate mismatch between assets and liabilities, also arising from possible product switches (to floating or fixed-rate, in the latter case for a limited period of time) on part of the portfolio. This risk is deemed to be commensurate with the assigned credit ratings. In case of product switches for an amount exceeding 30% of the initial pool balance, PTSB would have to repurchase these loans, which mitigates the interest rate risk associated, in particular, with the addition of more fixed-rate loans to the portfolio.

The portfolio mainly consists of recent origination (81.6% originated between 2022 and 2023) with just a negligible portion of restructured loans (0.1%).

The transaction account banks are PTSB, holding the collection funds, and The Bank of New York Mellon SA/NV, Dublin Branch: Based on Morningstar DBRS’ credit ratings on the account banks and the replacement provisions included in the transaction documents, Morningstar DBRS considers the risk of such counterparties to be consistent with the credit ratings assigned, in accordance with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions”.

Morningstar DBRS based its credit ratings primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage loan portfolio and the ability of the parties to perform servicing and collection activities.
-- The Morningstar DBRS-calculated portfolio default rate (PD), loss given default (LGD), and expected loss (EL) assumptions on the portfolio using the European RMBS Insight Model.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions of the notes.
-- The consistency of the transaction’s legal structure with the Morningstar DBRS “Legal Criteria for European Structured Finance Transactions” and the presence of legal opinions addressing the assignment of the assets to the Issuer.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade and replacement language in the transaction documents.
-- The sovereign rating on the Republic of Ireland at AA (low) with a Positive trend as of the date of this press release.

Morningstar DBRS' credit ratings on Class A1 and Class A2 notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related interest payment amounts and the related principal amount.

Morningstar DBRS' credit rating on Class A1 and Class A2 notes also addresses the credit risk associated with the increased rate of interest applicable to Class A1 and Class A2 notes if Class A Notes are not redeemed on the Optional Redemption Date in May 2029 and in accordance with the applicable transaction documents.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, or 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 (23 January 2024) https://dbrs.morningstar.com/research/427030.

Morningstar DBRS analysed the transaction structure in Intex Dealmaker. considering the default rates at which the rated notes did not return all specified cash flows.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: “European RMBS Insight Methodology” (25 March 2024), https://dbrs.morningstar.com/research/430103 and “European RMBS Insight: Irish Addendum” (22 April 2024), https://dbrs.morningstar.com/research/431544.

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.

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 loan-level data as of 14 June 2024 and historical performance data on dynamic arrears (from 2017 to 2024), static pool defaults (from 2019 to 2023), and static pool recoveries (from 2019 to 2023), provided by PTSB.

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

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.

These credit ratings concern newly issued financial instruments. These are the first Morningstar DBRS ratings on these financial instruments.

Information regarding Morningstar DBRS ratings, including definitions, policies, and methodologies, is available on https://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):

-- In respect of the Class A notes, a PD of 15.09% and LGD of 31.07%, corresponding to the AAA (sf) credit rating scenario, was stressed, assuming a 25% and 50% increase in the PD and LGD.

Class A1 Risk Sensitivity:
-- 25% increase in PD, ceteris paribus, would not lead to a rating change;
-- 50% increase in PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase in LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase in LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase in PD and 25% increase in LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase in PD and 50% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase in PD and 25% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase in PD and 50% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf).

Class A2 Risk Sensitivity:
-- 25% increase in PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase in PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase in LGD, ceteris paribus, would not lead to a rating change;
-- 50% increase in LGD, ceteris paribus, would not lead to a rating change;
-- 25% increase in PD and 25% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 25% increase in PD and 50% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase in PD and 25% increase in LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase in PD and 50% increase in LGD, ceteris paribus, would lead to a downgrade to AA (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: Antonio Laudani, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 27 June 2024

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Tel. +34 (91) 903 6500

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

-- European RMBS Insight Methodology (25 March 2024) and European RMBS Insight model v. 8.0.0.0, 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
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://dbrs.morningstar.com/research/420602
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- 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].