Morningstar DBRS Takes Credit Rating Actions on Atlas Funding 2025-1 plc

DBRS Ratings Limited (Morningstar DBRS) took the following credit rating actions on the provisional credit ratings of the bonds to be issued by Atlas Funding 2025-1 plc (the Issuer):

-- Class A notes confirmed at (P) AAA (sf)
-- Class B notes confirmed at (P) AA (high) (sf)
-- Class C notes confirmed at (P) A (high) (sf)
-- Class D notes confirmed at (P) BBB (high) (sf)
-- Class E notes confirmed at (P) BB (high) (sf)
-- Class X notes downgraded to (P) BBB (high) (sf) from (P) A (high) (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 July 2062. The provisional credit ratings on the Class B, Class C, Class D, and Class E notes address the timely payment of interest once they are the senior-most class of notes outstanding and until then the ultimate payment of interest and the ultimate repayment of principal on or before the legal final maturity date. The provisional credit rating on the Class X notes addresses the ultimate payment of interest and principal on or before the legal final maturity date.

CREDIT RATING RATIONALE
Following the assignment of provisional credit ratings to the bonds expected to be issued by the Issuer, Morningstar DBRS has received updated information on the expected size of the Class X notes, which has increased to 1.00% from 0.75% of the portfolio balance (including prefunding loans). Furthermore, Morningstar DBRS also received updated information on the hedging mechanism of the transaction, which has reduced the excess spread expected to be available in the early life of the transaction, as compared to the hedging assumptions tested to initially assign the provisional credit ratings. After testing the notes cash flows to incorporate these structural changes, Morningstar DBRS has confirmed the provisional credit ratings on the Class A, Class B, Class C, Class D, and Class E notes and has downgraded the Class X notes to (P) BBB (high) (sf) from (P) A (high) (sf).

The transaction represents the issuance of residential mortgage-backed securities (RMBS) backed by first-lien, buy-to-let (BTL) mortgage loans granted by Lendco Limited (Lendco; the seller or the originator) in the UK.

The Issuer is a bankruptcy-remote special-purpose vehicle (SPV) incorporated in the UK. Lendco is a UK specialist property finance lender, which has been offering loans to customers in England and Wales since 2018. Lendco's BTL business targets professional portfolio landlords, often real estate companies or SPVs, which they acquire through the broker marketplace.

This is Lendco's fifth securitisation with the inaugural transaction, Atlas Funding 2021-1, closing in January 2021, followed by Atlas Funding 2022-1 in May 2022, Atlas Funding 2023-1 in May 2023, and Atlas Funding 2024-1 in May 2024.

Liquidity in the transaction is provided by the combination of a liquidity facility (LF) available from closing and a liquidity reserve fund (LRF) that will be funded through excess spread. The LF shall cover senior costs and expenses, senior swap payments, and interest shortfalls on the Class A notes only whereas the LRF shall cover the same items plus interest shortfalls on the Class B notes. In addition, principal borrowing is also envisaged under the transaction documentation and can be used to cover senior costs and expenses as well as interest shortfalls on the senior-most class of notes outstanding but subject to some conditions for the Class B to Class E notes.

Interest shortfalls on the Class B to Class E notes, as long as they are not the senior-most class of notes outstanding, shall be deferred and not be recorded as an event of default until the final maturity date or such earlier date on which the notes are fully redeemed.

The transaction also features two fixed-to-floating interest rate swaps, given the presence of a large portion of fixed-rate loans (with a compulsory reversion to floating in the future), while the liabilities shall pay a coupon linked to Sonia.

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 Methodology";
-- 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. Morningstar DBRS analysed the transaction structure using Intex DealMaker. Morningstar DBRS considered additional sensitivity scenarios of 0% CPR;
-- 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;
-- Morningstar DBRS' sovereign credit rating on the United Kingdom of Great Britain and Northern Ireland of AA with a Stable trend as of the date of this press release; and
-- 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 that are expected to address the assignment of the assets to the Issuer.

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. The associated financial obligations for each of the rated notes are the related Interest Amounts and the related Class Balances.

Morningstar DBRS' credit rating on the rated notes also addresses the credit risk associated with the increased rate of interest applicable to each of the rated notes if the rated notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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 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 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 methodology applicable to the credit ratings is "European RMBS Insight Methodology" (28 February 2025) https://dbrs.morningstar.com/research/449129.

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.

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 Lendco Limited and its representatives. Morningstar DBRS received a loan-by-loan data tape as of 28 February 2025 as well as following historical data sets:
dynamic quarterly arrears from Q3 2018 to January 2025,
dynamic quarterly prepayments from Q3 2018 to January 2025, and
monthly historical data for previous Atlas transactions.

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

Morningstar DBRS was supplied with one or more third-party assessments. Morningstar DBRS applied additional cash flow stresses in its 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.

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 final credit ratings 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 ratings.

These credit ratings concern expected-to-be-issued new financial instruments.

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 https://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 determine the credit ratings (the base case):

-- In respect of the Class A notes, a Probability of Default Rate (PDR) of 16.9% and LGD of 43.7%, 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 Probability of Default Rate (PDR) of 15.0% and LGD of 41.0%, corresponding to the AA (high) (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 Probability of Default Rate (PDR) of 11.0% and LGD of 34.1%, corresponding to the A (high) (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 Probability of Default Rate (PDR) of 7.5% and LGD of 28.0%, 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 Probability of Default Rate (PDR) of 4.3% and LGD of 22.8%, corresponding to the BB (high) (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 Probability of Default Rate (PDR) of 6.9% and LGD of 26.1%, corresponding to the BBB (sf) credit rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A notes risk sensitivity:
-- 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 AA (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf).

Class B notes risk sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf).

Class C notes risk sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

Class D notes risk sensitivity:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would not lead to a downgrade.
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).

Class E notes risk sensitivity:
-- 25% increase of the PD, ceteris paribus, would not lead to a downgrade.
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (sf).
-- 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 (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low) (sf).

Class X notes risk sensitivity:
-- 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 not lead to a downgrade.
-- 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 not lead to a downgrade.

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: Lorenzo Coccioli, Vice President.
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 27 March 2025

DBRS Ratings Limited
1 Oliver's Yard 55-71 City Road, 2nd Floor
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 (28 February 2025), https://dbrs.morningstar.com/research/449129 and European RMBS Insight Model v. 10.1.0.0.
-- 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.
-- 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.