Morningstar DBRS Upgrades and Confirms Credit Ratings on Pavillion Mortgages 2021-1 PLC and Pavillion Mortgages 2022-1 PLC

DBRS Ratings Limited (Morningstar DBRS) took the following credit rating actions on the Rated Notes issued Pavillion Mortgages 2021-1 PLC (P2021) and Pavillion Mortgages 2022-1 PLC (P2022) (together, the Issuers):

P2021
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AAA (sf)
-- Class C upgraded to AAA (sf) from AA (high) (sf)
-- Class D upgraded to AA (high) (sf) from AA (low) (sf)
-- Class E upgraded to A (high) (sf) from A (sf)

P2022
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AAA (sf)
-- Class C upgraded to AAA (sf) from AA (high) (sf)
-- Class D confirmed at A (sf)
-- Class E upgraded to BBB (sf) from BBB (low) (sf)

For P2021, the credit ratings on the Class A, Class B, and Class C Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The credit ratings on the Class D and Class E Notes address the timely payment of interest when they are the most senior class of notes outstanding, and the ultimate repayment of principal by the legal final maturity date.

For P2022, the credit ratings on the Class A, Class B, and Class C Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The credit ratings on the Class D and Class E Notes address the timely payment of interest when they are the most senior class of notes outstanding, and the ultimate repayment of principal by the legal final maturity date.

The credit rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses;
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels.

Both transactions are securitisations of U.K. first-lien owner-occupied residential mortgages originated and serviced by Barclays Bank UK plc (BBUK).

PORTFOLIO PERFORMANCE
P2021: As of the 31 July 2024 cut-off date, loans two to three months in arrears represented 0.1% of the outstanding portfolio balance, down from 0.2% in July 2023. Loans more than three months in arrears represented 0.2%, up from 0.1% in July 2023.

P2022: As of the 30 June 2024 cut-off date, loans two to three months in arrears remained at 0.0% the outstanding portfolio balance and loans more than three months in arrears represented 0.2%, up from 0.0% in June 2023.

No foreclosures have been reported for either portfolio since the closing of the transactions.

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 at the B (sf) rating level to the following:
-- P2021: base case PD of 2.2% and base case LGD of 4.4%.
-- P2022: base case PD of 1.6% and base case LGD of 12.2%.

CREDIT ENHANCEMENT
Credit enhancement (CE) is provided by the subordination of the junior notes and the general reserve fund. Current CE levels to the Rated Notes compared to the CE levels at the Morningstar DBRS initial ratings are as follows:

P2021:
-- Class A CE is 50.9%, up from 13.7%
-- Class B CE is 36.9%, up from 8.2%
-- Class C CE is 25.5%, up from 3.7%
-- Class D CE is 21.7%, up from 2.2%
-- Class E CE is 19.4%, up from 1.3%

P2022:
-- Class A CE is 23.2%, up from 15.6%
-- Class B CE is 16.9%, up from 11.3%
-- Class C CE is 10.7%, up from 7.2%
-- Class D CE is 4.7%, up from 3.1%
-- Class E CE is 3.0%, up from 2.0%

The transactions each benefit from a liquidity reserve fund (LRF), which covers senior fees, interest on the Class A and Class B notes, and senior deferred consideration. The LRF is currently at its target level of GBP 0.8 million for P2021, and GBP 2.1 million for P2022, each equal to 0.5% of the outstanding Class A and Class B notes balance.

The transactions also benefit from a general reserve fund (GRF). The GRF covers senior fees, interest on the Class A to Class E notes, and principal losses via the principal deficiency ledgers (PDL) on the Class A to Class E notes (subject to a PDL condition of 10% for each class). The GRF is currently at its target level of GBP 9.6 million for P2021, equal to 1.75% of the initial balance of the mortgage loans less the LRF target amount; and GBP 10.1 million for P2022, equal to 2.50% of the initial balance of the mortgage loans less the LRF target amount.

Barclays Bank PLC acts as the account bank for both transactions. Based on the Morningstar DBRS private rating of Barclays Bank PLC, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structures, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Class A and Class B notes in each transaction, as described in Morningstar DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Barclays Bank UK PLC acts as the swap counterparty for both transactions. Morningstar DBRS's private rating of Barclays Bank UK PLC is consistent the First Rating Threshold as described in Morningstar DBRS's "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS's credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS's 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the credit ratings is "Master European Structured Finance Surveillance Methodology" (6 August 2024): https://dbrs.morningstar.com/research/437540.

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 transactions 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 actions.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit 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 investor reports provided by U.S. Bank Global Corporate Trust Limited, 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 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.

The last credit rating action on P2021 took place on 25 September 2023, when Morningstar DBRS confirmed its credit ratings on the Class A and Class B notes at AAA (sf) and upgraded its ratings on the Class C, Class D, and Class E notes to AA (high) (sf), AA (low) (sf), and A (sf), respectively, from A (high) (sf), A (high) (sf), and A (low) (sf), respectively.

The last credit rating action on P2022 took place on 25 September 2023, when Morningstar DBRS confirmed its credit ratings on the Class A, Class B, Class C, and Class D notes at AAA (sf), AAA (sf), AA (high) (sf), and A (sf), respectively, and upgraded its credit rating on the Class E notes to BBB (low) (sf) from BB (high) (sf).

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

-- 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 Issuers at the B (sf) credit rating level are as follows:
-- P2021: The base case PD of 2.2% and a base case LGD of 4.4%.
-- P2022: The base case PD of 1.6% and a base case LGD of 12.2%.

-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption.

P2021
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 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 C 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 D 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 (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 (low) (sf)

Class E 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)
-- 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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (low) (sf)

P2022
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 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 C 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 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 (low) (sf)

Class D Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (sf)
-- 50% increase in LGD, expected credit rating of A (low) (sf)
-- 25% increase in PD, expected credit rating of A (sf)
-- 50% increase in PD, expected credit rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (low) (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 E Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (sf)
-- 50% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD, expected credit rating of BBB (sf)
-- 50% increase in PD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (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 GmbH for use in the European Union.

Lead Analyst: Clare Wootton, Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Dates:
P2021: 15 December 2021
P2022: 8 December 2022

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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.

-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540/master-european-structured-finance-surveillance-methodology.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings.
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571/operational-risk-assessment-for-european-structured-finance-originators-and-servicers.
-- European RMBS Insight Methodology (18 September 2024), https://dbrs.morningstar.com/research/439573/european-rmbs-insight-methodology.
-- European RMBS Insight: U.K. Addendum (16 August 2024) and European RMBS Insight Model v 10.0.0.0, https://dbrs.morningstar.com/research/437988/european-rmbs-insight-uk-addendum.
-- Interest Rate Stresses for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435278/interest-rate-stresses-for-european-structured-finance-transactions.

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 https://dbrs.morningstar.com/ or contact us at info-DBRS@morningstar.com.