Morningstar DBRS Assigns Provisional Credit Ratings to Radnor Re 2024-1 Ltd.

DBRS, Inc. (Morningstar DBRS) assigned the following provisional ratings to the Mortgage Insurance-Linked Notes, Series 2024-1 (the Notes) to be issued by Radnor Re 2024-1 Ltd. (RMIR 2024-1 or the Issuer):

-- $96.2 million Class M-1A at BB (high) (sf)
-- $76.9 million Class M-1B at BB (low) (sf)
-- $57.7 million Class M-1C at B (high) (sf)
-- $76.9million Class M-2 at B (low) (sf)
-- $19.2 million Class B-1 at B (low) (sf)

The BB (high) (sf) credit rating reflects 6.00% of credit enhancement, provided by subordinated notes in the transaction. The BB (low) (sf), B (high) (sf), and B (low) (sf) credit ratings reflect 5.00%, 4.25%, and 3.00% of credit enhancement, respectively.

Other than the specified classes above, Morningstar DBRS does not rate any other classes in this transaction.

RMIR 2024-1 is Essent Guaranty, Inc.'s (Essent Guaranty or the Ceding Insurer) 10th rated mortgage insurance-linked note (MILN) transaction. The Notes are backed by reinsurance premiums, eligible investments, and related account investment earnings, in each case relating to a pool of mortgage insurance (MI) policies linked to residential loans. The Notes are exposed to the risk arising from losses the Ceding Insurer pays to settle claims on the underlying MI policies. As of the cut-off date, the pool of insured mortgage loans consists of 120,648 fully amortizing, first-lien, fixed- and variable-rate mortgages underwritten primarily to a full documentation standard with original loan-to-value ratios (LTVs) less than or equal to 100% that have never been reported to the Ceding Insurer as 60 or more days delinquent, and have not been reported to be in a payment forbearance plan as of the cut-off date. The mortgage loans have MI policies effective on or after July 2023 and on or before July 2024.

Approximately 0.7% (by balance) of the underlying insured mortgage loans in this transaction are not eligible to be acquired by Freddie Mac and Fannie Mae, i.e., by government-sponsored enterprises (GSEs) or agencies.

All of the mortgage loans are insured under the new master policy that was introduced on March 1, 2020, to conform to the revised rescission relief principles of GSEs under the Private Mortgage Insurer Eligibility Requirements guidelines (see the Representations and Warranties section of the related report for more detail).

On the Closing Date, the Issuer will enter into the Reinsurance Agreement with the Ceding Insurer. As per the agreement, the Ceding Insurer will get protection for the funded portion of the MI losses. In exchange for this protection, the Ceding Insurer will make premium payments related to the underlying insured mortgage loans to the Issuer.

The Issuer is expected to use the proceeds from the sale of the Notes to purchase certain eligible investments that will be held in the reinsurance trust account. The eligible investments are restricted to Aaa-mf by Moody's rated U.S. Treasury money-market funds and securities. Unlike other residential mortgage-backed security (RMBS) transactions, cash flow from the underlying loans will not be used to make any payments. Instead, in MILN transactions, a portion of the eligible investments held in the reinsurance trust account will be liquidated to make principal payments to the noteholders and to make loss payments to the Ceding Insurer when claims are settled with respect to the MI policy.

The Issuer will use the investment earnings on the eligible investments, together with the Ceding Insurer's premium payments, to pay interest to the noteholders.

The calculation of principal payments to the Notes will be based on the reduction in aggregate exposed principal balance on the underlying MI policy that is allocated to the Notes. The subordinate Notes will receive their pro rata share of available principal funds if the minimum credit enhancement (CE) test and the delinquency test are satisfied. This is the first RMIR transaction with dynamic thresholds for performance tests. The minimum CE test has been set to pass at the closing date, thus allowing the rated classes to receive principal payments from the first Payment Date. The delinquency test will be satisfied if the three-month average of 60+ days delinquency percentage is less than the applicable delinquency threshold percentage times the subordinate percentage. Additionally, if these performance tests are met and the subordinate percentage is greater than the target CE percentage, the subordinate Notes will be entitled to accelerated principal payments equal to two times the subordinate principal reduction amount, until the subordinate percentage comes down to target CE percentage. See the Cash Flow Structure and Features section of the related report for more detail.

The coupon rates are based on the Secured Overnight Financing Rate (SOFR). There are replacement provisions put in place in the event that SOFR is no longer available; please see the Offering Circular section of the related report for more details. Morningstar DBRS did not run interest rate stresses for this transaction as the interest is not linked to the performance of the underlying loans. Instead, interest payments are funded via (1) premium payments that the Ceding Insurer must make under the reinsurance agreement and (2) earnings on eligible investments.

On the Closing Date, the Ceding Insurer will establish a cash and securities account, the premium deposit account. In case of the Ceding Insurer's default in paying coverage premium payments to the Issuer, the amount available in this account will be used to make interest payments to the noteholders. The premium deposit account will not be funded at closing. The Ceding Insurer will make a deposit into this account up to the applicable target balance only when one of the Premium Deposit Events occurs. Please refer to the related report for more detail.

The RMIR 2024-1 transaction is issued with a 10-year term. The Notes are scheduled to mature on September 25, 2034, but are subject to early redemption at the option of the Ceding Insurer for a 10% clean-up call, or on or after the payment date in September 2029, among others. The Notes are also subject to mandatory redemption before the scheduled maturity date upon the termination of the Reinsurance Agreement. Additionally, there is a provision for the Ceding Insurer to issue a tender offer to reduce all or a portion of the outstanding Notes.

Essent Guaranty will be the Ceding Insurer. The Bank of New York Mellon (rated AA (high) with a Stable trend by Morningstar DBRS) will act as the Indenture Trustee, Paying Agent, Note Registrar, and Reinsurance Trustee.

The transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns June 2024 Update," published on June 28, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

The credit ratings reflect transactional strengths that include the following:
-- Agency-eligible loans.
-- High-quality credit and loan attributes.
-- MI termination.
-- A well-diversified pool.
-- Alignment of interest.

The transaction also includes the following challenges:
-- Counterparty exposure.
-- A weak representation and warranties framework.
-- Limited third-party due diligence.
-- Eligible investment losses.

The full description of the strengths, challenges, and mitigating factors is detailed in the related report.

Morningstar DBRS' credit rating on the Notes addresses 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 Payment Amount and Principal Payment Amount.

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/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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (June 28, 2024), https://dbrs.morningstar.com/research/435279.

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

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 are 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

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

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (June 28, 2024), https://dbrs.morningstar.com/research/435258
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (June 28, 2024), https://dbrs.morningstar.com/research/435282
-- Representations and Warranties Criteria for U.S. RMBS Transactions (June 28, 2024), https://dbrs.morningstar.com/research/435273
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Operational Risk Assessment for U.S. RMBS Originators (June 28, 2024), https://dbrs.morningstar.com/research/435259
-- Operational Risk Assessment for U.S. RMBS Servicers (June 28, 2024), https://dbrs.morningstar.com/research/435261

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.