Morningstar DBRS Upgrades and Confirms Credit Ratings on Towd Point Mortgage Funding 2023 - Vantage 3 plc

DBRS Ratings Limited (Morningstar DBRS) took the following credit rating actions on the notes issued by Towd Point Mortgage Funding 2023 - Vantage 3 plc:

-- Class A1 confirmed at AAA (sf)
-- Class A2 confirmed at AAA (sf)
-- Class B confirmed at AA (low) (sf)
-- Class C upgraded to A (sf) from A (low) (sf)
-- Class D upgraded to BBB (sf) from BBB (low) (sf)
-- Class E confirmed at BB (low) (sf)
-- Class F upgraded to B (sf) from B (low) (sf)

The credit ratings on the Class A1 and A2 notes (together, the Class A notes) addresses the timely payment of interest and the ultimate repayment of principal. The credit rating on the Class B notes addresses the timely payment of interest once they are the most senior class of notes outstanding and the ultimate repayment of principal on or before the final maturity date. The credit ratings on the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and principal.

CREDIT RATING RATIONALE
The credit rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the 31 July 2024 portfolio cut-off date;(corresponding to the August 2024 payment date);
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective credit rating levels.

The transaction is a securitisation of first lien mortgage loans, predominantly owner-occupied with a small proportion of buy-to-let, backed by residential properties located in the United Kingdom.

The mortgages were initially originated by GE Money Home Lending Limited, First National Bank plc (now GE Money Home Finance Limited) and Igroup Limited and were subsequently sold; first to Promontoria (Vantage) Limited, second to Cerberus European Residential Holdings B.V. and finally to CERH Vantage Holdings SARL, before being sold to the issuer. The mortgages present in the transaction were previously securitised in Towd Point Mortgage Funding 2016-Vantage1 plc and in Towd Point Mortgage Funding 2019-Vantage 2 plc. Capital Home Loans Limited acts as servicer and Homeloan Management Limited as back-up servicer.

PORTFOLIO PERFORMANCE
The portfolio has historically included a large proportion of loans in arrears, and delinquencies continue to increase. As of 31 July 2024, loans two to three months in arrears and loans at least three months in arrears represented 4.8% and 43.5% of the outstanding portfolio balance, respectively, compared to 5.4% and 38.1% at closing, respectively. Cumulative losses were 0.1% of the initial portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS conducted a loan-by-loan analysis of the remaining pool of receivables, and isolated loans considered to have a near certainty of default. For this portion of the pool, Morningstar DBRS applied base case PD and LGD assumptions at the B (sf) credit rating level of 100.0% and 10.2%, respectively, and 34.1% and 7.5% on the remainder of the pool, respectively.

CREDIT ENHANCEMENT
CE to the notes consists of the subordination of the respective junior classes of notes. As of the August 2024 payment date, the CE increased as follows since closing:
-- Class A to 31.2% from 28.0%;
-- Class B to 25.9% from 23.2%;
-- Class C to 20.3% from 18.2%;
-- Class D to 17.0% from 15.2%;
-- Class E to 13.7% from 12.2%; and
-- Class F to 12.0% from 10.7%.

The transaction benefits from a Liquidity Facility (LF) and a Liquidity Reserve Fund (LRF). The LF was established at closing, is provided by Wells Fargo Bank N.A., London Branch (privately rated by Morningstar DBRS), and sized at the maximum between 1.7% of the principal amount outstanding of the Class A notes and 1.0% of the principal amount outstanding of the Class B notes. The LF covers senior fees and interest payments on the Class A notes and Class B notes once the most senior class of notes outstanding, up to the Liquidity Facility Cancellation Date.

The LRF is currently unfunded and will cover senior fees and interest payments on the Class A notes and Class B notes once the most senior class of notes outstanding, from the Liquidity Facility Replacement Date in November 2026, and will be funded by available principal and revenue receipts. It will be sized at the maximum between 1.7% of the principal amount outstanding of the Class A notes and 1.0% of the principal amount outstanding of the Class B notes.

As of the August 2024 payment date, the LF had not been drawn on and was funded to its required level of ca. GBP 4.6 million.

Elavon Financial Services DAC, U.K. Branch (Elavon) acts as the account bank for the transaction. Based on the Morningstar DBRS private credit rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS considers the risk arising from the exposure to the account bank to be consistent with the credit rating assigned to the Class A notes, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' 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' 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 transaction 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 action.

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 Capital Home Loans Limited and loan-level data provided by EuroABS Limited.

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 one or more third-party assessments. Morningstar DBRS applied a haircut of 5% to the original valuations of the properties based on the estimated errors in the audit report.

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 this transaction took place on 17 November 2023, when Morningstar DBRS finalised its provisional credit ratings.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

Information regarding Morningstar DBRS credit 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 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 assumptions at the B (sf) credit rating level on the defaulted portion of 100.0% and 10.2%, respectively, and on the non-defaulted portion of 34.1% and 7.5%, respectively.
-- 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.

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

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

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

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of B (sf)
-- 50% increase in LGD, expected credit rating of B (sf)
-- 25% increase in PD, expected credit rating of B (sf)
-- 50% increase in PD, expected credit rating of B (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of B (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating below B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating below B (low) (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: Natalia Coman, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 6 November 2023

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
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.
-- Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540
-- European RMBS Insight Methodology (18 September 2024) and European RMBS Insight Model v10.0.0.0,
https://dbrs.morningstar.com/research/439573
-- European RMBS Insight: UK Addendum (16 August 2024),
https://dbrs.morningstar.com/research/437988
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024),
https://dbrs.morningstar.com/research/437781

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.