Morningstar DBRS Assigns Provisional Credit Ratings to Pavillion Mortgages 2024-1 PLC

DBRS Ratings Limited (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes to be issued by Pavillion Mortgages 2024-1 PLC (the Issuer):

-- Class A at (P) AAA (sf)
-- Class B at (P) AA (sf)
-- Class C at (P) A (sf)
-- Class D at (P) BBB (low) (sf)
-- Class E at (P) BB (low) (sf)
-- Class F at (P) B (low) (sf)

The provisional credit rating assigned to the Class A notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The provisional credit rating assigned to the Class B notes addresses the timely payment of interest once it is the senior-most and the ultimate repayment of principal by the legal final maturity date. The provisional credit ratings assigned to the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date. Morningstar DBRS does not rate the Class G and Class Z notes also expected to be issued in this transaction.

CREDIT RATING RATIONALE
The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in the UK. The collateralised notes are backed by first-lien owner-occupied residential mortgage loans originated by Barclays Bank UK PLC.

The transaction features a Liquidity Reserve Fund (LRF), which will provide liquidity support to the Class A and Class B notes, and the Class S Certificate in the priority of payments. The initial balance of the LRF will be 0.5% of the Class A and Class B notes' outstanding balance at closing; on each Interest Payment Date the target level of the LRF will be 0.5% of the outstanding balance of the Class A and Class B notes as at the end of the collection period until the Class B notes have redeemed.

The transaction also features a General Reserve Fund (GRF), which will provide liquidity and credit support to the rated notes The target balance of the GRF will be equal to 2.0% of the portfolio outstanding balance at closing minus the LRF target balance. In other words, the general reserve will be initially funded to its initial balance of GBP 14.4 million and its target balance will then increase as the LRF amortises.

Morningstar DBRS calculated the credit enhancement for the Class A notes at 21.6%, which is provided by the subordination of the Class B to Class G notes and the initial balance of the GRF. Credit enhancement for the Class B notes will be 14.6%, provided by the subordination of the Class C to Class G notes and the initial balance of the GRF. Credit enhancement for the Class C notes will be 10.1%, provided by the subordination of the Class D to Class G notes and the initial balance of the GRF. Credit enhancement for the Class D notes will be 6.8%, provided by the subordination of the Class E to Class G notes and the initial balance of the GRF. Credit enhancement for the Class E notes will be 4.1%, provided by the subordination of the Class F to Class G notes and the initial balance of the GRF. Credit enhancement for the Class F notes will be 2.6%, provided by the subordination of the Class G notes and the initial balance of the GRF.

As of 31 July 2024, the provisional mortgage portfolio consisted of 6,215 loans with an aggregate principal balance of GBP 921.3 million. The majority of the loans in the pool (71% of the initial collateral balance) have been originated between 2021 and 2024, with the rest having been granted from 2013 to 2020. Most mortgage loans in the asset portfolio were granted to employed borrowers (81.8%) and self-employed borrowers (16.9%) and are all secured by a first-ranking mortgage right.

The provisional portfolio contains 83% fixed-rate loans with a fixed-rate period. Once their fixed-rate period is over, the loans will switch to a floating rate of interest. As of the cut-off date, 66% of the mortgage loans were reported as performing, 19% were reported as delinquent with arrears up to three months (including technical arrears), and 15% delinquent with arrears above three months.

Barclays Bank UK PLC originated and services the mortgages. CSC Capital Markets UK Limited will be the backup servicer facilitator in the transaction.

Morningstar DBRS' credit ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. For the securities listed in the table above, the associated financial obligations for each of the rated notes are the related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS' credit ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes also address the credit risk associated with the increased rate of interest applicable to the Class A, Class B, Class C, Class D, Class E, and Class F notes if they are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

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, 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: European RMBS Insight Methodology (18 September 2024), https://dbrs.morningstar.com/research/439573 and European RMBS Insight: UK Addendum (16 August 2024), https://dbrs.morningstar.com/research/437988.

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 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 the provisional loan-by-loan pool tape and historical performance data provided by Barclays Bank PLC and its agents.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

Morningstar DBRS was supplied with a third-party assessment. 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 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 https://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 probability of default (PD) of 45.95% and loss given default (LGD) of 29.45%, 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 42.20% and LGD of 23.77%, 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 37.20% and LGD of 17.62%, corresponding to the A (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 28.92% and LGD of 12.58%, 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 20.79% and LGD of 9.51%, corresponding to the BB (low) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class F notes, a PD of 14.38% and LGD of 7.30%, corresponding to the B (low) (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 (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (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 AA (low) (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 (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)
-- 50% increase in PD, expected credit rating of BBB (high) (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 C Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD, expected credit rating of BBB (high) (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 (sf)
-- 25% increase in PD and 50% increase in LGD, 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)
-- 50% 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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of B (high) (sf)

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

Class F Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of CCC (sf)
-- 50% increase in LGD, expected credit rating of CCC (sf)
-- 25% increase in PD, expected credit rating of CCC (sf)
-- 50% increase in PD, expected credit rating of CCC (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of CCC (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of CCC (sf)
-- 50% increase in PD and 25% increase in LGD, the notes would not be rated
-- 50% increase in PD and 50% increase in LGD, the notes would not be rated

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: Rehanna Sameja, Senior Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 22 October 2024

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.

-- European RMBS Insight Methodology (18 September 2024) and European RMBS Insight model version 10.0.0.0, https://dbrs.morningstar.com/research/439573
-- European RMBS Insight: UK Addendum (16 August 2024), https://dbrs.morningstar.com/research/437988
-- Legal Criteria for European Structured Finance Transactions (28 June 2024), https://dbrs.morningstar.com/research/435165
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- 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/439604.

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