Morningstar DBRS Assigns Provisional Credit Rating to Elvet Mortgages 2025-1 PLC

DBRS Ratings Limited (Morningstar DBRS) assigned a provisional credit rating to the residential mortgage-backed notes to be issued by Elvet Mortgages 2025-1 PLC (the Issuer) as follows:

-- Class A notes at (P) AAA (sf)

The provisional 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 in December 2066.

Morningstar DBRS does not rate the Class B notes also expected to be issued in this transaction.

CREDIT RATING RATIONALE
The Issuer is a bankruptcy-remote, special-purpose vehicle incorporated in the United Kingdom (UK). The Issuer will use the proceeds from the notes to fund the purchase of prime and performing owner-occupied (OO) mortgage receivables originated by Atom Bank PLC (Atom Bank) and secured over properties located in the UK. This is the sixth securitisation from Atom Bank and third that is rated by Morningstar DBRS. The initial mortgage portfolio consists of 1,942 first-lien mortgage loans with a total portfolio balance of approximately GBP 341.3 million as of 30 November 2024, collateralised by OO residential properties in England, Scotland, Wales, and Northern Ireland. The mortgages were mostly granted between 2022 and 2024 (78.5%), with few cases dating back to 2017.

Atom Bank is the servicer of the transaction. In order to maintain servicing continuity, Law Debenture Corporate Services Limited will be appointed as the standby servicer facilitator. Atom Bank is also the originator and the seller of this transaction. Atom Bank was founded in 2014 in Durham, UK, as the UK's first app-based bank with no physical branches. It launched its residential mortgage platform in December 2016.

The Issuer is expected to issue two tranches of collateralised mortgage-backed securities (the Class A and Class B notes) to finance the purchase of the portfolio. The transaction is structured to initially provide 10.0% of credit enhancement to the Class A notes. This includes subordination of the Class B notes and the general reserve fund (GRF).

The GRF will provide liquidity and credit support to the Class A notes. The GRF will be funded from the subordinated loan Atom Bank will supply on the closing date. The GRF will be amortising and will be sized at closing at 1.5% of the initial Class A notes balance. On each interest payment date, the target level will be 1.5% of the current amount outstanding of the Class A notes as at the end of the collection period until the Class A notes have redeemed. The GRF is available to cover shortfalls in senior fees, interest, and any principal deficiency ledger debits on the Class A notes after the application of revenue. The excess amounts following amortisation of the Class A notes will form part of available revenue funds.

The transaction features a fixed-to-floating interest rate swap, given the provisional portfolio is exclusively composed of fixed-rate loans with a compulsory reversion to Atom Bank's standard variable rate, while the liabilities shall pay a coupon linked to the daily compounded Sterling Overnight Index Average. The swap counterparty to be appointed at closing will be Banco Santander S.A. (Santander). Based on Morningstar DBRS' credit rating on Santander, the downgrade provisions outlined in the legal documents, and the transaction structural mitigants, Morningstar DBRS considers the risk arising from the exposure to Santander to be consistent with the provisional credit rating assigned to the rated notes as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Furthermore, Citibank N.A., London Branch and Banco Santander S.A., London Branch shall act as the Issuer Account Bank, while National Westminster Bank Plc shall be appointed as the Collection Account Bank. All entities are privately rated by Morningstar DBRS, meet the eligible credit ratings in structured finance transactions, and are consistent with the provisional credit rating assigned to the rated notes as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS based its credit rating primarily on the following considerations:
-- The transaction's capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the provisional 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 loan 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 Methodology".
-- The transaction's ability to withstand stressed cash flow assumptions and repay the Class A 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 the 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.
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.

Morningstar DBRS' credit rating on the Class A 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 the Class A notes also addresses the credit risk associated with the increased rate of interest applicable to the 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 (13 August 2024).

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodologies applicable to this credit rating are: European RMBS Insight Methodology (3 December 2024), https://dbrs.morningstar.com/research/444100 and European RMBS Insight Model v.10.1.0.0.

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 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 this credit rating include those provided by Atom Bank and its representatives.

Morningstar DBRS was provided with loan-level, property, and margin data as of 30 November 2024, and historical performance data of the originator's loan book (outstanding balance, static defaults and delinquencies by number of months in arrears and vintage of origination, dynamic delinquencies, periodic prepayments, and data on switch rates) from 2017 to September 2024.

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

Morningstar DBRS was not 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 this credit rating 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 a final credit rating 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 rating.

This credit rating concerns an expected-to-be-issued new financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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):

-- In respect of the Class A notes, a PD of 14.9% and LGD of 29.4%, corresponding to the AAA 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 not lead to a downgrade of the Class A notes;
-- 50% increase of the PD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 50% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would not lead to a downgrade of the Class A notes;
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high).

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.

This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Sebastiano Romano, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 27 January 2025

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.

-- European RMBS Insight Methodology (3 December 2024) and European RMBS Insight model v 10.1.0.0, https://dbrs.morningstar.com/research/444100
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- 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

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.