Morningstar DBRS Assigns Provisional Credit Ratings to Bletchley Park Funding 2024-1 PLC

DBRS Ratings Limited (Morningstar DBRS) assigned provisional credit ratings to the residential mortgage-backed notes (the rated notes) to be issued by Bletchley Park Funding 2024-1 PLC (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 BB (sf)
-- Class X1 notes at B (sf)

The credit rating on the Class A notes addresses the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date. The credit ratings on the Class B, Class C, Class D, Class E, and Class X1 notes address the ultimate payment of interest and the ultimate repayment of principal on or before the legal final maturity date while junior and the timely payment of interest once such class of notes becomes the most senior class of notes outstanding. Morningstar DBRS does not rate the Class X2 notes or the residual certificates also expected to be issued in this transaction.

CREDIT RATING RATIONALE
The transaction represents the issuance of residential mortgage-backed securities (RMBS) backed by first-lien mortgage loans.

The Issuer is a bankruptcy-remote special-purpose vehicle (SPV) incorporated in the UK. The collateralised notes are backed by buy-to-let (BTL) mortgage loans originated by Quantum Mortgages Limited (QML) and by owner-occupied (OO) mortgage loans originated by Hey Habito Ltd. (Habito; together with QML, the originators).

QML is a UK specialist property finance lender that has been offering loans to customers in England, Wales, and Northern Ireland since May 2022. QML's BTL business targets professional portfolio landlords, often real estate companies or SPVs, which they acquire through the broker marketplace. Habito is an online mortgage broker, incorporated in January 2015, offering services to customers in the UK. It originated residential mortgage loans from May 2021 to September 2022.

The provisional portfolio consists of GBP 208 million of QML-originated mortgage loans collateralised by BTL properties in the UK and GBP 15 million of Habito-originated mortgage loans collateralised by OO residential properties in England and Wales. The weighted-average (WA) seasoning of the portfolio is 10 months, with two-thirds of the pool (67%) originated in the past 12 months. BCMGlobal Mortgage Services Limited will service the BTL loans. Habito will service the OO loans as master servicer and, upon termination of the master servicing agreement, Pepper (UK) Limited will take over.

Liquidity in the transaction is provided by a liquidity reserve fund (LRF) funded through the issuance of the collateralised notes at closing and through excess spread thereafter. The LRF shall cover senior costs and expenses, senior swap payments, and interest shortfalls on the Class A and Class B notes. In addition, principal borrowing is also envisaged under the transaction documentation and can be used to cover senior costs and expenses as well as interest shortfalls on the most senior outstanding class of the Class A to Class E notes after using revenue funds and the LRF. Principal can also be used to cure any shortfalls on the notes that are not the most-senior class of notes outstanding as long as the relevant principal deficiency ledger balance for each of those notes is less than 10%.

All interest on the notes (apart from Class A interest) can be deferred while the class is not the most senior, and deferred interest becomes due on the first payment date the particular class of notes becomes most senior.

The transaction also features two fixed-to-floating interest rate swaps (IRS) (a vanilla IRS for the QML loans and a balance guaranteed swap for the Habito loans), given the presence of a large portion of fixed-rate loans (with a compulsory reversion to floating in the future), while the liabilities shall pay a coupon linked to the daily compounded Sterling Overnight Index Average. The swap counterparty to be appointed at closing will be NatWest Markets Plc (NatWest). Based on Morningstar DBRS' credit rating on NatWest, the downgrade provisions outlined in the documents, and the transaction structural mitigants, Morningstar DBRS considers the risk arising from the exposure to NatWest to be consistent with the credit ratings assigned to the rated notes as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

Furthermore, Citibank N.A., London Branch shall act as the Issuer account bank while Barclays Bank PLC and National Westminster Bank Plc shall be appointed as the collection account banks for the QML loans and the Habito loans, respectively. All three entities' current credit ratings meet the eligible credit ratings in structured finance transactions and are consistent with the credit ratings assigned to the rated notes as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS based its credit ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including the form and sufficiency of available credit enhancement;
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. Morningstar DBRS estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. Morningstar DBRS used the PD, LGD, and EL as inputs into the cash flow engine. Morningstar DBRS analysed the mortgage portfolio in accordance with its "European RMBS Insight: UK Addendum";
-- The transaction's ability to withstand stressed cash flow assumptions and repay the Class A, Class B, Class C, Class D, Class E, and Class X1 notes according to the terms of the transaction documents;
-- 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 credit rating of AA with a Stable trend on the United Kingdom of Great Britain and Northern Ireland as of the date of this press release; and
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions that are expected to address the assignment of the assets to the Issuer.

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. The associated financial obligations for each of the rated notes are the related Interest Amounts and the related Class Balances.

Morningstar DBRS' credit ratings on the rated notes also address the credit risk associated with the increased rate of interest applicable to each of the rated notes if the rated notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

Morningstar DBRS' credit rating does 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 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, 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 (23 January 2024) at 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 British pound sterling unless otherwise noted.

The principal methodologies applicable to the credit ratings are the European RMBS Insight: UK Addendum (11 August 2023), https://dbrs.morningstar.com/research/419141, and the 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 Morningstar DBRS 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 those provided by QML, Habito and their representatives. Morningstar DBRS received a loan-by-loan data tape as of 30 April 2024 and historical performance data of the originators' loan books (origination volumes, outstanding balance, arrears, and prepayments) from May 2021 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 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.

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 the 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 finalise 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 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 21.4% and an LGD of 42.1% 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 PD of 18.2% and an LGD of 36.3% 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 PD of 13.0% and an LGD of 28.1% 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 PD of 9.6% and an LGD of 22.8% 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 PD of 6.5% and an LGD of 19.4% corresponding to the BB (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class X1 notes, a PD of 3.9% and an LGD of 16.6% corresponding to the B (high) (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.

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

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

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

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

Class X1 Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of below B (sf)
-- 50% increase in LGD, expected credit rating of below B (sf)
-- 25% increase in PD, expected credit rating of below B (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of below B (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of below B (sf)
-- 50% increase in PD, expected credit rating of below B (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (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 GmbH for use in the European Union.

Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Rehanna Sameja, Senior Vice President
Initial Rating Date: 17 July 2024

DBRS Ratings Limited
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Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

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 8.0.0.1, https://dbrs.morningstar.com/research/430103
-- European RMBS Insight: UK Addendum (11 August 2023), https://dbrs.morningstar.com/research/419141
-- 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
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://dbrs.morningstar.com/research/420572
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024), https://dbrs.morningstar.com/research/429054
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278
-- 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 info-DBRS@morningstar.com.