DBRS Ratings Limited (Morningstar DBRS) finalised provisional credit ratings on the notes issued by Sage AR Funding 2026 No.1 PLC (the Issuer).
Class A at AAA (sf)
Class B at AA (low) (sf)
Class C at A (low) (sf)
Class D at BBB (sf)
All trends are Stable.
CREDIT RATING RATIONALE
The transaction is an Issuer-borrower loan securitisation whereby the Issuer used the proceeds of the notes issuance to advance two separate (not cross-collateralised) floating-rate loans to two borrowers: GBP 241.4 million Cardamom Loan to the Cardamom borrower and GBP 249.1 million Saffron Loan to the Saffron borrower. The Cardamom and Saffron borrowers used the proceeds under their respective loans to on-lend the proceeds to their parent entity, Sage Rented Limited (SRL), a for-profit registered provider of social housing. SRL will use the proceeds under both the loans to refinance existing indebtedness as well as for general corporate purposes. SRL will pay interest and principal under both the loans to the Cardamom and Saffron borrowers, as applicable. The Cardamom and Saffron borrowers, in turn, will use those payments to make interest and principal payments under their respective loans from the Issuer. SRL granted third-party security by way of mortgages and a share pledge over the shares in the respective borrowers to secure the obligations of both the Borrowers under their respective facility agreements. SRL also granted security as a fixed charge over its segregated bank account into which rent is paid and over the right to receive rental income under the occupational leases. The Borrowers will maintain full signing rights and full discretion over operating the segregated account.
The Sage Homes Group (Sage or the Sponsor) was established in May 2017 and is majority-owned by the Blackstone Group. Sage's core business is the provision of new affordable homes, which are rented at discounts to the prevailing open market rate and are let only to people on local authority housing waiting lists who are in housing need. Leases entered into by Sage with its affordable rent tenants usually include a one-year probationary period with a long-term (usually five years) tenancy granted thereafter. Sage's leases with social rent tenants usually include a one-year probationary period and a lifetime (assured) tenancy granted thereafter. The Sponsor is an experienced Issuer within the securitisation space. This transaction represents the fourth securitisation by the Sponsor following Sage AR Funding No.1 Plc, Sage AR Funding 2021 PLC, and SAGE AR Funding 2025 No.1 PLC, all three of which are rated by Morningstar DBRS.
Together, the loans are backed by 3,885 social housing units (2,197 houses and 1,688 flats) located across 188 residential development schemes in England. The units are new-build and were predominantly completed between 2021 and 2025 and acquired as part of SRL's national new-build programme. The Cardamom portfolio contains 1,927 units across 72 sites, with an average age of 2.7 years and a 98.4% occupancy rate. The Saffron portfolio contains 1,958 units across 116 sites, with an average age of 3.2 years and a 99.4% occupancy rate. In terms of largest regional concentration, 44% of the Cardamom Portfolio by Market Value Subject To Tenancies (MVSTT) is in the Home Counties & London Commuter followed by 21% in Southeast. For the Saffron Portfolio, 46% of the assets by MVSTT are in the Southeast, followed by 17% in West Midlands. Both portfolios are reasonably granular: for Cardamom, the top 10 developments account for 41.1% of portfolio GRI and 41.5% of MVSTT, with no development site accounting for over 7.7% of the Cardamom Portfolio MVSTT; for Saffron, the top 10 developments account for 27.2% of portfolio GRI and 28.2% of MVSTT, with no development site accounting for more than 7.3% of the Saffron Portfolio MVSTT.
Registered providers are required to set rent levels and rental increases for social and affordable rents in compliance with UK Government policy. Rent increases are limited to the CPI plus 1%, a trend that is currently expected to continue through the loan term. The indexation increase is reflected every year in April, calculated using the CPI in the 12 months to September in the preceding year. In April 2026, a rental indexation of 4.8% is anticipated to occur, with the Office for National Statistics having estimated CPI in the 12 months to September 2025 at 3.8%.
Savills have valued both the portfolios on the basis of Existing Use Value for Social Housing (EUV-SH) as well as, where applicable, MVSTT. Properties that are subject to restrictions, either in title or in use, have been valued only on EUV-SH basis. The Cardamom Portfolio was valued at GBP 324.7 million on EUV-SH basis and GBP 410.8 million on MVSTT basis (MVSTT for properties with title/use restrictions is capped at EUV-SH). The Saffron Portfolio was valued at GBP 322.3 million on EUV-SH basis and GBP 436.9 million on MVSTT basis (MVSTT for properties with title/use restrictions is capped at EUV-SH). The market value (MV) of both the portfolios as referenced in this report is the aggregate of MVSTT for each portfolio. Portfolio MV for both portfolios on a combined basis is GBP 847.7 million. LTV ratios mentioned in this report for each of the loans is based on their respective portfolio MVs (Cardamom 58.8% LTV, Saffron 57.0% LTV) whereas NTV ratios (cumulative 57.9% through Class D) are based on the combined MVs of both the portfolios.
Morningstar DBRS estimated a long-term sustainable net cash flow (NCF) of GBP 15.29 million for the Cardamom Portfolio and GBP 15.12 million for the Saffron Portfolio. Applying a long-term sustainable capitalisation rate of 4.75% for both the portfolios resulted in a Morningstar DBRS MV of GBP 321.86 million for the Cardamom Portfolio (representing a 21.7% haircut from Savills' MV) and GBP 318.35 million for the Saffron Portfolio (representing a 27.1% haircut from Savills' MV). At Morningstar DBRS MVs, LTVs for the Cardamom and Saffron loans are 75.0% and 78.2% respectively (versus 58.8% and 57.0%, respectively, based on Savills' MVs).
Both the loans bear interest at a floating rate equal to three-month Sterling Overnight Index Average (Sonia), plus a margin. The margin for each loan is calculated as a weighted-average (WA) margin of the rated notes, with the notional amount of each class of rated notes used in calculating the WA margin being adjusted to reflect the notional contribution of each of the loans at any given point in time. There is no interest payable on the portion corresponding to the Class R notes. The loans are interest-only with no scheduled amortisation.
Both the loans are expected to repay in May 2031, with two annual extension options through May 2033. The transaction documentation allows for one 12-month servicer-extension through May 2034. Any extensions beyond that are deemed to be a term extension modification requiring noteholder resolution. The legal final maturity of the notes is expected to be in May 2038, five years after the second extended loan maturity in May 2033. If the final repayment day of the loans is extended beyond May 2033, the legal final maturity of the notes will be commensurately changed to ensure a five-year legal tail period. Given the security structure and jurisdiction of the underlying loan, Morningstar DBRS believes this provides sufficient time to enforce on the loans' collateral, if necessary, and repay the bondholders.
No interest rate hedging was in place at the time of closing. However, Morningstar DBRS understands that even though the first interest period is a long one (through August 2026), the Borrowers are obligated to execute a suitable hedging arrangement on or before the hypothetical first loan payment date falling in May 2026. The aggregate notional amount of the hedging transactions in respect of the loans is expected to be 100% of the outstanding principal amount of the loans. The Borrowers are obligated to ensure that the maximum hedging rate is no more than the higher of (1) 3% p.a. and (2) the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged interest coverage ratio (ICR) is not less than 1.2x. However, if any hedging transaction is in the form of a swap and if the market prevailing swap (fixed leg) rate at that time is lower than each of (1) and (2) above, such market prevailing swap (fixed leg) rate on the date on which the relevant hedging transaction is contracted would be the maximum hedging rate. The initial hedging agreement is expected to expire on or after the first interest payment date falling after the second anniversary of the utilisation date. Morningstar DBRS anticipates that the hedging will be extended for the full duration of the term of both the loans. Furthermore, in the event of one or more extensions to the loan maturity date beyond May 2031, there is an obligation to extend the hedge every year for the remaining term of the loan. Failure to extend the hedging arrangement such that it is co-terminous with the expected final repayment date on the loan would constitute an event of default (EOD) under the transaction documents.
Prior to a permitted change of control (PCOC), a cash trap event on each of the loans occurs if on any loan payment date: for Cardamom loan - the rated LTV exceeds 73.8% and/or rated debt yield (DY) is less than 5.21%; for Saffron loan - the rated LTV exceeds 72.0% and/or rated debt yield (DY) is less than 5.04%. There are no LTV and DY EOD financial covenants prior to a PCOC. On or after a PCOC, EOD financial covenants are: if the rated LTV exceeds the sum of (1) the rated LTV on the PCOC date and (2) 15 percentage points, and/or rated DY is less than 85.0% of the rated DY on the PCOC date.
The Borrowers are allowed to dispose of properties subject to the prepayment of principal in an amount equal to the release price, which is 100% of the allocated loan amount (ALA) of that property. For a disposal of part of a property, the release price is the lower of the release price of the whole property and the day-1 ALA of that property multiplied by the proportion (based on GLA) that the part being sold bears to the whole property.
On the closing date, Deutsche Bank AG London Branch provided a liquidity facility of GBP 31.5 million. The liquidity facility can be used to cover interest shortfalls on the Class A, Class B, Class C, and Class D notes. Morningstar DBRS estimates the liquidity facility support is equivalent to approximately 17 months of coverage based on a hedge strike rate of 3% or approximately 12 months of coverage based on a 5.0% Sonia cap after the expected maturity date of the notes. The liquidity facility size will be reduced based on amortisation/paydown, if any, of the supported classes of notes and in the event of a material decline in MV of the property portfolio.
To satisfy risk retention requirements, an entity within the Sage Group retained a residual interest consisting of no less than 5% of the nominal value of the loan and fair market value of the overall capital structure by subscribing to the unrated and junior-ranking Class R notes. This retention note ranks junior in relation to interest and principal payments to all rated notes in the transaction.
Morningstar DBRS' credit ratings on the notes issued by the Issuer address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the note interest at the applicable rate and the related class principal balance.
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. For example, Sonia excess amounts, exit payment amounts, and pro rata default interest.
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, and 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 (16 May 2025) at https://dbrs.morningstar.com/research/454196.
Notes:
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the credit ratings is Rating and Monitoring European and Asia-Pacific CMBS Transactions (30 January 2026), https://dbrs.morningstar.com/research/473078.
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/457952/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these credit ratings include a data tape with a cut-off date of 31 October 2025, valuation report prepared by Savills dated 25 November 2025, transaction documentation and related legal opinions, all provided by MSBNA, DB and Clifford Chance LLP to date.
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.
Morningstar DBRS expects Structured Finance issuers and originators of Structured Finance products to make all relevant information regarding these products available to investors to conduct their own analysis.
These credit ratings concern a newly issued financial instrument. These are the first Morningstar DBRS credit ratings 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):
Class A Risk Sensitivity:
10% decline in Morningstar DBRS NCF, expected credit rating on the Class A Notes of AA (sf).
20% decline in Morningstar DBRS NCF, expected credit rating on the Class A Notes of A (low) (sf).
Class B Risk Sensitivity:
10% decline in Morningstar DBRS NCF, expected credit rating on the Class B Notes of A (low) (sf).
20% decline in Morningstar DBRS NCF, expected credit rating on the Class B Notes of BBB (sf).
Class C Risk Sensitivity:
10% decline in Morningstar DBRS NCF, expected credit rating on the Class C Notes of BBB (sf).
20% decline in Morningstar DBRS NCF, expected credit rating on the Class C Notes of BB (high) (sf).
Class D Risk Sensitivity:
10% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of BB (high) (sf).
20% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of below B (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: Anant Ramgarhia, Vice President
Rating Analyst: Violetta Volovich, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 17 February 2026
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
Rating and Monitoring European and Asia-Pacific CMBS Transactions (30 January 2026), https://dbrs.morningstar.com/research/473078.
Legal and Derivative Criteria for European and Asia-Pacific Structured Finance Transactions (10 November 2025), https://dbrs.morningstar.com/research/466839.
Interest Rate and Currency Stresses for Global Structured Finance Transactions (26 January 2026), https://dbrs.morningstar.com/research/472333.
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196.
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.
