Morningstar DBRS Confirms Ratings on Warwick Finance Residential Mortgages Number Four Plc

DBRS Ratings Limited (Morningstar DBRS) confirmed the credit ratings on the bonds issued by Warwick Finance Residential Mortgages Number Four Plc (the Issuer) as follows:

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

The credit rating on the Class A notes addresses the timely payment of interest and the ultimate payment 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 while junior, and the timely payment of interest while the senior-most class outstanding on or before the legal final maturity date. The credit ratings on the Class C, Class D, and Class E notes address the ultimate payment of interest and principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
The confirmations 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 cut-off date of 31 August 2024 (corresponding to the September 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 seasoned owner-occupied and buy-to-let nonconforming portfolios of mortgages originated in the United Kingdom by Platform Funding Limited, Verso Limited, Kensington Mortgage Company Limited, Southern Pacific Mortgages Limited, and GMAC-RFC Limited (now Paratus AMC Limited). The loans were sold to the Issuer at transaction close by The Co-operative Bank plc and are serviced by Western Mortgages Services Limited, part of Capita Financial Services Holdings Limited.
The notes pay a floating rate on a quarterly basis and the applicable margins are expected to step up at the December 2024 payment date. The legal final maturity date is at the March 2042 payment date.

PORTFOLIO PERFORMANCE
As of 31 August 2024, loans two-to-three-months in arrears and loans more than three months in arrears represented 1.8% and 15.7% of the outstanding portfolio balance, respectively, up from 1.7% and 6.0%, respectively. As of 31 August 2024, the cumulative outstanding losses represented 0.2% 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 has updated its base case PD and LGD assumptions at the B (sf) credit rating level to 17.6% and 4.8%, respectively.

CREDIT ENHANCEMENT
CE to the notes is provided by the subordination of junior classes and the principal residual certificates. As of the September 2024 payment date, the CE available to the notes increased as follows, compared to 12 months prior:
-- CE to the Class A to 31.0% from 26.2%,
-- CE to the Class B to 21.6% from 18.2%,
-- CE to the Class C to 15.2% from 12.9%,
-- CE to the Class D to 12.1% from 10.2%, and
-- CE to the Class E to 8.9% from 7.6%.

The transaction benefits from a liquidity reserve fund of GBP 2.8 million, available to cover senior fees and interest on the Class A and Class B notes. The liquidity reserve fund is currently at its target level, which corresponds to 1.0% of the initial principal outstanding balance of the Class A and Class B notes.

As of the September 2024 payment date, there was a cumulative deferred interest on the Class C, Class D and Class E notes of GBP 44,339, GBP 93,699, and GBP 105,822, respectively. Morningstar DBRS considered the accrued and unpaid interest in its analysis.

Citibank N.A./London Branch (Citibank London) acts as the account bank for the transaction. Based on Morningstar DBRS' private credit rating on Citibank London, 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 and Derivative 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 transaction's respective press release 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 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" (19 November 2024) https://dbrs.morningstar.com/research/443204.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings assigned to the Class C and Class D notes materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit ratings. In this case, the credit rating confirmations account for the sensitivity of the credit ratings on the Class C and Class D notes to increased default rates and loss severities, particularly in the context of observed performance deterioration within the collateral pool.

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 and loan-level data provided by The Co-operative Bank plc.

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 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.

The last credit rating action on the Issuer took place on 4 December 2023, when Morningstar DBRS confirmed its credit ratings on the Class A, Class D, and Class E notes at AAA (sf), BBB (high) (sf), and BB (high) (sf), respectively, and upgraded its credit ratings on the Class B and Class C notes to AA (high) (sf) and A (high) (sf), respectively, from AA (sf) and A (low) (sf), respectively.

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 of the current pool of loans for the Issuer at the B (sf) credit rating level are 17.6% and 4.8%, 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 AAA (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 AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

Class B 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 A (high) (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 (high) (sf)

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

Class D 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 (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 BBB (low) (sf)

Class E 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 (high) (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 BB (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: Ketan Thaker, Managing Director
Initial Rating Date: 23 August 2019

DBRS Ratings Limited
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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 (19 November 2024),
https://dbrs.morningstar.com/research/443204
-- 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 and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196
-- 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.