Morningstar DBRS Assigns Provisional Credit Ratings to Dutch Mortgage Finance 2024-1 B.V.

DBRS Ratings GmbH (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by Dutch Mortgage Finance 2024-1 B.V. (the Issuer) as follows:

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

The provisional credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in August 2067. The provisional credit rating on the Class B Notes addresses the timely payment of interest when most senior and the ultimate payment of principal by the legal final maturity date. The provisional credit ratings on the Class C, Class D, and Class E Notes address the ultimate payment of interest and principal by the legal final maturity date. Morningstar DBRS does not rate the Class F, Class X, Class S1, Class S2, or Class R Notes also expected to be issued in this transaction.

CREDIT RATING RATIONALE

The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The Issuer will use the proceeds of the issued notes to fund the purchase of Dutch mortgage receivables originated or acquired by RNHB B.V. (RNHB or the original seller). The original seller will sell the portfolio to the seller who will via the interim seller sell the portfolio and the legal title of the mortgage receivables to the Issuer. The Issuer will use proceeds from the Class X and R Notes to fund the reserve fund (RF).

The original seller is a buy-to-let and midmarket real estate lending business in the Netherlands, and was incorporated on 16 September 2016. However, the history of the mortgage lending business that the seller now owns dates back to 1890 when Nederlandse Hypotheekbank was founded. In 2008, Rijnlandse Hypotheekbank and Nederlandse Hypotheekbank (both owned by Rabobank) formally merged to form the RNHB business within FGH Bank N.V. (FGH). In December 2016, the RNHB business and loan portfolio were acquired by a consortium of (1) funds managed by AB CarVal Investors L.P. (CarVal) and (2) Arrow Global Group Plc, with CarVal holding the majority interest. Vesting Finance Servicing B.V. together with RNHB as master and special servicer will be the primary servicer of the mortgage portfolio, and Intertrust Administrative Services B.V. will act as a replacement servicer facilitator.

As of 31 May 2024, the portfolio consisted of 5,921 loans with a total portfolio balance of approximately EUR 1.5 billion. The weighted-average (WA) seasoning of the portfolio is 6.3 years with a WA remaining term of 3.3 years. The WA current loan-to-value ratio (LTV) is comparatively low for a Dutch portfolio at 54.0%. The majority of the loans (98.0%) in the portfolio are fixed with future resets while the notes pay a floating rate of interest. To address this interest rate mismatch, the transaction is structured with a fixed-to-floating interest rate swap that swaps the fixed interest rate received from the assets for three-month Euribor. The portfolio is performing at 98.9%, and only 1.1% of the loans are in arrears equal to or greater than one month.

Until the first optional redemption date (FORD) in August 2029, RNHB has the ability to grant and the Issuer has the obligation to purchase further advances subject to their adherence to asset conditions and available principal funds. The transaction documents specify criteria that must be met during this period for further advances to be sold to the Issuer. Morningstar DBRS considered these conditions when assessing the possibility of the portfolio LTV increasing as a result of further advances.

Morningstar DBRS calculated credit enhancement for the Class A Notes at 17.0%, provided by the subordination of the Class B to Class F Notes and the RF. Credit enhancement for the Class B Notes will be 12.0%, provided by the subordination of the Class C to Class F Notes and the RF. Credit enhancement for the Class C Notes will be 8.5%, provided by the subordination of the Class D to Class F Notes and the RF. Credit enhancement for the Class D Notes will be 5.15%, provided by the subordination of the Class E to Class F Notes and the RF. Credit enhancement for the Class E Notes will be 3.0%, provided by the subordination of the Class F Notes and the RF.

The transaction benefits from a RF fully funded at closing from the overall deal proceeds that will provide credit and liquidity support to the Class A to Class F Notes. The RF is amortising with a target amount equal to 1.5% of the outstanding balance of the Class A to Class F Notes with a floor on and after the FORD being 1.5% of Class A to Class F outstanding balance at the time of FORD. Additionally, the notes will be provided with liquidity support from principal receipts, which the Issuer can use to cover interest shortfalls on the most-senior class of notes, provided that a credit is applied to the principal deficiency ledgers in reverse-sequential order.

The Issuer will enter into a fixed-to-floating balanced-guaranteed swap with NatWest Markets N.V. (rated "A" with a stable trend by Morningstar DBRS) to mitigate the fixed interest rate risk from the mortgage loans and the three-month Euribor payable on the notes. The notional of the swap is linked to the performing balance (less than 180 days in arrears) of the fixed-rate assets. The Issuer will pay a fixed swap rate and receive three-month Euribor in return. The original seller will also covenant that, on an average basis, the fixed-rate mortgage reset rate for a loan will, at the minimum, be equal to the swap rate plus 2.25% and the overall WA margin of the pool cannot fall below the swap rate plus 2.50%. The swap documents reflect Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

The Issuer account bank and paying agent is Elavon Financial Services DAC (Elavon). Morningstar DBRS' private rating on Elavon is consistent with the threshold for the account bank as outlined in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology, given the ratings assigned to the notes.

Morningstar DBRS' credit ratings on the Class A to Class E 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 Class Balances.

Morningstar DBRS' credit ratings on the Class A to Class E Notes also address the credit risk associated with the increased rate of interest applicable to the Class A to Class E Notes if the Class A to Class E Notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction document(s).

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND 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 methodologies applicable to the credit ratings are:
European CMBS Rating and Surveillance Methodology (17 January 2024) https://dbrs.morningstar.com/research/426818
European RMBS Insight: Dutch Addendum (11 March 2024) https://dbrs.morningstar.com/research/429169
European RMBS Insight Methodology (25 March 2024) https://dbrs.morningstar.com/research/430103

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

Morningstar DBRS has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

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/436000/.

The sources of data and information used for these credit ratings include RNHB, Citibank, and its agents. Morningstar DBRS was provided with loan-level data as of 31 May 2024 and historical performance data of the originator's loan book (delinquencies, constant default rates, prepayment rates, and cumulative losses) from August 2011 to April 2024.

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 affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing this credit rating 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

These credit ratings concern expected-to-be-issued new financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

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

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

-- In respect of the Class A Notes, a PDR of 32.9% and LGD of 38.3%, corresponding to the AAA (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class B Notes, a PDR of 29.3% and LGD of 33.5%, corresponding to the AA (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C Notes, a PDR of 22.8% and LGD of 22.8%, corresponding to the A (low) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class D Notes, a PDR of 17.6% and LGD of 13.1%, corresponding to the BBB (low) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class E Notes, a PDR of 6.4% and LGD of 10.8%, corresponding to the B (low) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Morningstar DBRS concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf).

Morningstar DBRS concludes the following impact on the Class B Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

Morningstar DBRS concludes the following impact on the Class C Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).

Morningstar DBRS concludes the following impact on the Class D Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf).

Morningstar DBRS concludes the following impact on the Class E Notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class E Notes;
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (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: Ronja Dahmen, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 18 July 2024

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.

-- European RMBS Insight Methodology (25 March 2024),
https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: Dutch Addendum (11 March 2024),
https://dbrs.morningstar.com/research/429169 and European RMBS Insight model v.8.0.0.1.
-- European CMBS Rating and Surveillance Methodology (17 January 2024),
https://dbrs.morningstar.com/research/426818
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Derivative Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435260
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278
-- 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].