Morningstar DBRS Confirms Credit Ratings on PRPM Lagado 2022-1 DAC With Stable Trends

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the bonds issued by PRPM Lagado 2022-1 DAC (the Issuer) as follows:

-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (sf)

All trends remain Stable.

The transaction represents the issuance of the Class A, Class B, and Class Z Notes (collectively, the notes). 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 rating on the Class B Notes addresses the ultimate payment of interest and principal. Morningstar DBRS does not rate the Class Z Notes. Morningstar DBRS' credit ratings do not address additional note payments (as defined in the transaction documents).

Various financial institutions, including GE Capital Woodchester Home Loans Limited; Bank of Scotland Ireland; Irish Nationwide Building Society; Anglo Irish Bank; KBC Bank; Allied Irish Banks, p.l.c.; and Danske Bank A/S (together, the original lenders), originated the portfolio. The original lenders sold the loans in various closings to vehicles controlled by different investment funds between 2012 and 2018 (the original acquisitions). Subsequently, in 2020 and 2021, these investment funds sold the loans to the current transaction's seller. Consequently, this is considered a secondary trade transaction.

The portfolio's total gross book value as of the 31 July 2022 cut-off date was EUR 690.5 million, composed mainly of secured residential loans held by individuals.

After the original acquisitions, Pepper Finance Corporation (Ireland) DAC (Pepper) conducted the servicing and administration activities and remained administrator after closing. Mars Capital Finance Ireland DAC (Mars) also entered into an administration agreement with the Issuer at closing and acts as the backup servicer to the transaction. In July 2023, 526 loans were migrated to Mars.

CREDIT RATING RATIONALE
The credit rating confirmations follow a review of the transaction and are based on the following analytical considerations:
-- Transaction performance: An assessment of the portfolio recoveries as of June 2024, with a focus on: (1) a comparison between actual gross collections and the administrator's initial business plan forecast; (2) recovery performance observed over the past months; (3) the historical collections trend and average pay rate recorded in the past six months; and (4) a comparison between current performance and Morningstar DBRS' expectations.
-- Portfolio characteristics: The loan pool composition as of June 2024 and the evolution of its core features.
-- Transaction liquidating structure: The order of priority, which entails a fully sequential amortisation of the notes (i.e., the Class B Notes will begin to amortise following the full repayment of the Class A Notes). Class B interest will be subordinated to principal payments on the Class A Notes if a Class B subordination event occurs, which is defined as the cumulative collection ratio and the net present value (NPV) ratio falling below 90%.
-- Liquidity support: The transaction benefits from an amortising cash reserve providing liquidity to the structure and covering potential interest shortfalls on the Class A Notes. The cash reserve target balance equals 6.2% of the Class A Notes' balance at closing, with a variable target schedule for the first 12 interest payment dates and 4.0% thereafter. It is currently fully funded.

TRANSACTION AND PERFORMANCE
According to the latest investor report from July 2024, the outstanding principal amounts of the Class A, Class B, and Class Z Notes were EUR 94.7 million, EUR 15.0 million, and EUR 40.0 million, respectively. As of July 2024, the balance of the Class A Notes had amortised by 28.0% since issuance and the current aggregated transaction balance is EUR 149.7 million.

As of the June 2024 collection date, the transaction was performing below the administrator's initial expectations. The actual cumulative gross collections were EUR 56.4 million whereas the administrator's initial business plan estimated cumulative gross collections of EUR 79.7 million for the same period. Therefore, as of June 2024, the transaction was underperforming by 29.2% compared with the administrator's business plan expectations.

At issuance, Morningstar DBRS estimated cumulative gross collections of EUR 11.5 million at the AA (low) (sf) and EUR 35.3 million at A (sf) stressed scenarios for the same period. Therefore, as of June 2024, the transaction was performing significantly above Morningstar DBRS' initial AA (low) (sf) and A (sf) stressed scenarios.

Excluding actual collections, the administrator's expected future collections from July 2024 account for EUR 258.9 million. In a declining interest rate scenario, the updated Morningstar DBRS AA (low) (sf) and A (sf) credit rating stresses assume a haircut of 41.4% and 36.4% to the administrator's executed business plan, respectively, considering future expected collections.

The final maturity date of the transaction is October 2075.

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, 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" (13 August 2024) https://dbrs.morningstar.com/research/437781 .

Morningstar DBRS analysed the transaction structure using Intex DealMaker.

Notes:
All figures are in euros 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 surveillance section of 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 the Issuer, U.S. Bank Global Corporate Trust, Pepper Finance Corporation (Ireland) DAC, and Mars Capital Finance Ireland DAC, which comprise, in addition to the information received at issuance, the investor report as of July 2024; the loan-by-loan report as of June 2024; and performance data as of June 2024.

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 impact 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 this transaction took place on 26 October 2023, when Morningstar DBRS confirmed its credit ratings on the Class A and Class B Notes at AA (low) (sf) and A (sf), respectively, and maintained the Stable trends.

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 confirm the credit ratings (the base case):

-- Recovery rates used: Cumulative base case recovery amount (declining interest rate scenario) of approximately EUR 148.5 million and EUR 164.6 million at the AA (low) (sf) and A (sf) levels, respectively, a 5% and 10% decrease in the base case recovery rate.
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a confirmation of the Class A Notes at AA (low) (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 5%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (low) (sf).
-- Morningstar DBRS concludes that a hypothetical decrease of the recovery rate by 10%, ceteris paribus, would lead to a downgrade of the Class B Notes to BBB (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 Limited for use in the United Kingdom.

Lead Analyst: Pablo Iturriaga, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 4 November 2022

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

-- Rating European Nonperforming and Reperforming Loans Securitisations (18 October 2024), https://dbrs.morningstar.com/research/441431/
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165/
-- Master European Structured Finance Surveillance Methodology (6 August 2024), https://dbrs.morningstar.com/research/437540/
-- European RMBS Insight Methodology (18 September 2024), 
https://dbrs.morningstar.com/research/439573
-- European RMBS Insight: Irish Addendum (22 April 2024), 
https://dbrs.morningstar.com/research/431544/
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571/
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://dbrs.morningstar.com/research/439043/
-- 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.