Morningstar DBRS Finalises Its Provisional Credit Ratings on Ealbrook Mortgage Funding 2024-1 Plc

DBRS Ratings Limited (Morningstar DBRS) finalised its provisional credit ratings on the bonds issued by Ealbrook Mortgage Funding 2024-1 Plc (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at B (high) (sf)

The credit ratings on the Class A notes address the timely payment of interest and the ultimate payment of principal on or before the final maturity date in August 2066. The credit ratings on the Class B to Class E notes address the timely payment of interest when most senior and the ultimate payment of principal on or before the final maturity date. Morningstar DBRS does not rate the Class R notes.

CREDIT RATING RATIONALE
The Issuer is a securitisation of UK residential mortgage-backed securities (RMBS) backed by first lien mortgage loans. The portfolio has been originated and is serviced by Bluestone Mortgages Limited (Bluestone). In 2023, Bluestone has been acquired by Shawbrook Bank Limited, which is the seller and sponsor of the transaction.

The portfolio comprises almost entirely (99.1%) owner-occupied mortgages and has a WA original loan-to-value ratio (OLTV) of 68.0% and WA seasoning of 1.1 years. The initial WA coupon of the portfolio of 7.8% and the pool will benefit from a reversionary margin above Bank of England Rate (BBR) of about 3.9%.

The Issuer issued five tranches of collateralised mortgage-backed securities (the Class A, Class B, Class C, Class D, and Class E notes) to finance the purchase of the initial portfolio. Additionally, one class of noncollateralised notes was issued, the Class R notes, the proceeds of which were used by the Issuer to fund the GRF and the LRF.

The LRF is available to cover shortfalls of senior fees and interest on the Class A and Class B notes. The LRF is amortising and sized at 1.4% of the initial Class A and Class B notes at closing. On each Interest Payment Date (IPD), the target level will be 1.4% of the current amount outstanding of the Class A and Class B notes until the Class B notes have redeemed. The amortisation of the LRF would stop if either: (1) the collateralised notes are not redeemed in full at the FORD; or (2) the cumulative defaults are greater than 5% of closing portfolio balance

The GRF provides liquidity and credit support to the rated notes. The GRF has a target amount on each IPD equal to 1.4% of the initial collateralised notes balance minus the LRF target amount. The GRF is available to cover shortfalls on senior fees, interest, and any principal deficiency ledger (PDL) debits on the Class A to Class E notes after the application of revenue available funds and LRF draws. The amortisation of the GRF is subject to the same conditions of the LRF amortisation (see above). On the final maturity date, all amounts held in the GRF will form part of available principal funds and the GRF target will be zero.

Morningstar DBRS based its credit ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including the form and sufficiency of available credit enhancement;
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. Morningstar DBRS estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. Morningstar DBRS used the PD, LGD, and EL as inputs into the cash flow engine. Morningstar DBRS analysed the mortgage portfolio in accordance with its "European RMBS Insight: UK Addendum";
-- The transaction's ability to withstand stressed cash flow assumptions and repay the Class A, Class B, Class C, Class D and Class E notes according to the terms of the transaction documents;
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents;
-- The sovereign credit rating of AA with a Stable trend on the United Kingdom of Great Britain and Northern Ireland as of the date of this press release; and
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions that are expected to address the assignment of the assets to the Issuer.

Morningstar DBRS' credit rating on the rated notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment Amounts and the related Class Balances.

Morningstar DBRS' credit rating on Class A, Class B, Class C, Class D, and Class E Notes also addresses the credit risk associated with the increased rate of interest applicable Class A, Class B, Class C, Class D, and Class E 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 factor(s) 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 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: UK Addendum (16 August, 2024) https://dbrs.morningstar.com/research/437988.

European RMBS Insight Methodology (18 September, 2024) https://dbrs.morningstar.com/research/439573.

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.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign 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 Shawbrook Bank Limited, Bluestone Mortgages Limited and their agents. Historical performance data covered the period from January 2018 until June 2024 and included:
-- Cumulative losses
-- Cumulative defaults
-- Cumulative prepayments
-- Dynamic delinquencies
-- Loan-by-loan repossessions

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

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.

These credit ratings concern newly issued financial instrument. These are the first Morningstar DBRS credit ratings on this financial instrument.

This is the first credit rating action since the Initial Rating Date.

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 rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

-- In respect of the Class A Notes, a probability of default (PD) of 31.7% and loss given default (LGD) of 28.9%, corresponding to the AAA 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 26.7% and LGD of 21.5%, corresponding to the AA (low) 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 21.9% and LGD of 15.3%, corresponding to the A (low) 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 18.6% and LGD of 12.0%, corresponding to the BBB 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 9.9% and LGD of 6.4%, corresponding to the B (high) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Risk Sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (high);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (low);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA;
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high).

Class B Risk Sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (high);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (low);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high).

Class C Risk Sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high).

Class D Risk Sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB;
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low).

Class E Risk Sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to B (low);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to below B (low);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B;
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (low);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to below B (low);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (low);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to below B (low).

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: Lorenzo Coccioli, Vice President,
Rating Committee Chair: Rehanna Sameja, Senior Vice President,
Initial Rating Date: 24 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 v 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.