The ratings address the likelihood of a loss under the guarantee on the respective tranche resulting from borrower defaults at the legal final maturity date in
The transaction is a synthetic balance-sheet collateralised loan obligation structured in the form of a financial guarantee (the Guarantee). The tranches are collateralised by a portfolio of term loans to small and medium-size enterprises (SMEs) and loans backed by income-producing real estate (IPRE), comprising either commercial or residential properties (the Reference Portfolio), granted to borrowers in the
The upgrades and confirmations follow an annual review of the transaction and are based on the following analytical considerations:
Portfolio performance, in terms of cumulative defaults, and compliance with replenishment criteria during the replenishment period as of the reporting date on
Updated default rate (PD), recovery rate, and expected loss assumptions for the Reference Portfolio;
The current available credit enhancement to the rated tranches to cover expected losses of each tranche at its respective rating level; and
Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
PORTFOLIO PERFORMANCE
As of the latest loan-by-loan data from
As of the latest investor report from
As of
PORTFOLIO ASSUMPTIONS AND
DBRS Morningstar divided its analysis of the Reference Portfolio into three key subpools, consisting of loans to SMEs, loans backed by commercial IPRE, and loans backed by residential IPRE.
For the SME subpool, the main methodology that DBRS Morningstar applied was its 'Rating CLOs Backed by Loans to European SMEs'.
DBRS Morningstar conducted the asset analysis on the commercial IPRE subpool in line with its 'European CMBS Rating and Surveillance Methodology' to determine expected stressed recovery rates. Given the granularity of the commercial IPRE subpool, DBRS Morningstar relied on historical performance data to determine a base case PD. DBRS Morningstar conducted analysis of the residential IPRE subpool in accordance with its 'European RMBS Insight Methodology' and the 'European RMBS Insight:
DBRS Morningstar conducted a review of the current Reference Portfolio and updated its base case PD and recovery rate assumptions to 10.4% and 58.0%, respectively, from 11.4% and 64.1%, respectively, at the last annual review. DBRS Morningstar's updated assumptions include adjustments within the context of the coronavirus pandemic.
CREDIT ENHANCEMENT
Credit enhancement (CE) in this transaction consists of the subordination of the junior tranches and takes into account the Maximum Reference Portfolio balance. As of
CE to Tranche A increased to 69.7%, up from 43.7%;
CE to Tranche B increased to 60.0%, up from 37.6%;
CE to Tranche C increased to 57.4%, up from 36.0%;
CE to Tranche D increased to 54.3%, up from 34.1%;
CE to Tranche E increased to 47.6%, up from 29.9%;
CE to Tranche F increased to 45.9%, up from 28.9%;
CE to Tranche G increased to 42.0%, up from 26.4%;
CE to Tranche H increased to 31.4%, up from 19.8%;
CE to Tranche I increased to 29.7%, up from 18.7%;
CE to Tranche J increased to 27.4%, up from 17.3%;
CE to Tranche K increased to 20.4%, up from 12.9%; and
CE to Tranche L increased to 19.3%, up from 12.2%.
The substantial increase in CE drives the upgrades on the provisional ratings.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many structured finance transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.
For this transaction, DBRS Morningstar applied a 1.5 times (x) or a 2.0x adjustment factor on the underlying one-year PDs for obligors in mid-high or high-risk industries based on their perceived exposure to the adverse disruptions of the coronavirus, as per DBRS Morningstar's 'European Structured Credit Transactions' Risk Exposure to Coronavirus (COVID-19) Effect' commentary released on
For this transaction, DBRS Morningstar also applied haircut to the recoveries as per DBRS Morningstar's 'European CMBS Transactions' Risk Exposure to Coronavirus (COVID-19) Effect' commentary released on
On
The DBRS
https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
Notes:
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is: 'Rating CLOs Backed by Loans to European SMEs' (28 June 2021).
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to 'Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings' of the 'Global Methodology for Rating Sovereign Governments' at: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.
The DBRS
The sources of data and information used for these ratings include loan-level data and investor reports provided by
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
Default Rate Used: Portfolio Default Rate (ranging between 33.6% and 10.4% at the
Recovery Rates Used: Recovery Rate (ranging between 36.0% and 58.0% at the
DBRS Morningstar concludes that a hypothetical increase of the PD rate by 20% or a hypothetical decrease of the Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the rated tranches up to one notch. A scenario combining both an increase in the PD by 10% and a decrease in the Recovery Rate by 10% would lead to a downgrade of the rated tranches up to one notch.
For further information on DBRS Morningstar historical default rates published by the
These ratings are endorsed by
Lead Analyst:
Rating Committee Chair:
Initial Rating Date:
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
Rating CLOs Backed by Loans to European SMEs (
Rating CLOs and CDOs of Large Corporate Credit (
European RMBS Insight Methodology (
European RMBS Insight:
European CMBS Rating and Surveillance Methodology (
Master European Structured Finance Surveillance Methodology (
Legal Criteria for European Structured Finance Transactions (
Operational Risk Assessment for European Structured Finance Servicers (
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
12-Nov-21 Tranche A Provis.-ConfirmedAAA (sf) --UK
E
12-Nov-21 Tranche B Provis.-ConfirmedAAA (sf) --UK
E
12-Nov-21 Tranche C Provis.-Confirmed AA (high) (sf) --UK
E
12-Nov-21 Tranche D Provis.-Confirmed AA (high) (sf) --UK
E
12-Nov-21 Tranche E Provis.-Confirmed AA (sf) --UK
E
12-Nov-21 Tranche F Provis.-Confirmed AA (sf) --UK
E
12-Nov-21 Tranche G Provis.-Confirmed AA (sf) --UK
E
12-Nov-21 Tranche H Provis.-Upgraded AA (sf) --UK
E
12-Nov-21 Tranche I Provis.-Upgraded AA (sf) --UK
E
12-Nov-21 Tranche J Provis.-Upgraded AA (sf) --UK
E
12-Nov-21 Tranche K Provis.-Upgraded AA (low) (sf) --UK
E
12-Nov-21 Tranche L Provis.-Upgraded AA (low) (sf) --UK
E
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