Morningstar DBRS Finalises Provisional Credit Ratings to Pierpont BTL 2024-1 PLC

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

-- Class A Notes Provis.-Final at AAA (sf) from (P) AAA (sf)
-- Class B Notes Provis.-Final at AA (low) (sf) from (P) AA (low) (sf)
-- Class C Notes Provis.-Final at A (sf) from (P) A (low) (sf)
-- Class D Notes Provis.-Final at BBB (high) (sf) from (P) BBB (sf)
-- Class E Notes Provis.-Final at BBB (low) (sf) from (P) BB (high) (sf)
-- Class X Notes Provis.-Final at BB (high) (sf) from (P) BB (high) (sf)

The credit rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the final maturity date. The credit ratings on the Class B to E notes address the timely payment of interest once they are the most senior class and the ultimate repayment of principal on or before the final maturity date. The credit rating on the Class X notes addresses the ultimate repayment of interest and principal on or before the final maturity date.

CREDIT RATING RATIONALE
The transaction represents the issuance of United Kingdom of Great Britain and Northern Ireland (UK) residential mortgage-backed securities (RMBS) backed by first-lien, buy-to-let (BTL) mortgage loans. The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in the UK. The notes issuance has funded the purchase of UK first-lien mortgage loans originated and serviced by LendInvest BTL Limited (LendInvest) and MTF (LE) Limited (MTF) (the Originators and Servicers), and subsequently purchased by JPMorgan Chase Bank, N.A., London branch (the Seller).

This is the third securitisation from the Pierpont BTL series, the first rated by Morningstar DBRS, following Pierpont BTL 2021-1 PLC and Pierpont BTL 2023-1 PLC. The mortgage portfolio as of August 2024 consists of GBP 299.7 million of first-lien mortgage loans collateralised by BTL properties in the UK. The pool has a seasoning of six months and yields a current weighted-average coupon of 5.5%.

Liquidity in the transaction is provided by a liquidity reserve fund (LRF), which covers senior costs and expenses as well as interest shortfalls for the Class A notes. In addition, the LRF is also available to cover interest shortfalls in the Class B notes as long as either they are the most senior class of notes outstanding or that the debit balance in their principal deficiency ledger does not exceed 10% of the initial principal amount of the Class B notes at closing.

Principal borrowing is also envisaged under the transaction documentation and can be used to cover senior costs and expenses, including swap payments, as well as interest shortfalls of Classes A to E, subject to being the most senior class of notes outstanding.

The transaction also features a fixed-to-floating interest rate swap, given the presence of fixed-rate loans (which would revert to a floating rate in the future), while the liabilities will pay a coupon linked to Sterling Overnight Index Average. The swap counterparty appointed as of closing is J.P. Morgan SE. Furthermore, Citibank, N.A., London Branch has been appointed as the Issuer Account Bank, and Barclays Bank PLC acts as the Collection Account Bank.

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, Class E, and Class X 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 ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. 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 and Class E notes also address the credit risk associated with the increased rate of interest applicable to the Class A to Class E notes if these notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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) 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 rating 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 methodology 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 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 the credit ratings include LendInvest and MTF and their representatives. Morningstar DBRS received a loan-by-loan data tape as of 31 August 2024 as well as monthly historical data, which included information on dynamic arrears and prepayments. The data covered the December 2017 to July 2024 period for LendInvest and the September 2022 to July 2024 period for MTF loans.

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.

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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

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 Rate (PDR) of 18.4% and LGD of 43.4%, 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 PDR of 14.0% and LGD of 36.0%, corresponding to the AA (low) (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 PDR of 11.8% and LGD of 31.7%, 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 PDR of 8.8% and LGD of 27.6%, corresponding to the BBB (high) (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 PDR of 7.4% and LGD of 24.2%, 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 X notes, a PDR of 5.3% and LGD of 22.5%, corresponding to the BB (high) (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Morningstar DBRS concludes the following impact on the Class A notes:
-- 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 (high);
-- 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 A (high);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA;
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high).

Morningstar DBRS concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A;
-- 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;
-- 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).

Morningstar DBRS concludes the following impact on the Class C notes:
-- 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;
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low).

Morningstar DBRS concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB;
-- 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 BBB;
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high);
-- 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 (high).

Morningstar DBRS concludes the following impact on the Class E notes:
-- 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 (high);
-- 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.

Morningstar DBRS concludes the following impact on the Class X notes:
-- 25% increase of the PD, ceteris paribus, would not lead to a downgrade;
-- 50% increase of the PD, ceteris paribus, would not lead to a downgrade;
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade;
-- 50% increase of the LGD, ceteris paribus, would not lead to a downgrade;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would not lead to a downgrade;
-- 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 not lead to a downgrade;
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (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: Ketan Thaker, Managing Director
Initial Rating Date: 18 October 2024

DBRS Ratings Limited
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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.

-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- 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/439604.

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