DBRS Morningstar Confirms and Upgrades Ratings of Notes Issued by Two SapphireOne Transactions
RMBSDBRS Ratings GmbH (DBRS Morningstar) confirmed and upgraded its ratings on the bonds issued by two SapphireOne transactions (together, the Issuers) as follows:
SapphireOne Mortgages FCT 2016-2 (Sapphire 2)
-- Class A confirmed at AAA (sf)
-- Class B confirmed at AAA (sf)
-- Class C upgraded to AAA (sf) from AA (high) (sf)
-- Class D upgraded to AA (high) (sf) from AA (sf)
-- Class E confirmed at AA (low) (sf)
SapphireOne Mortgages FCT 2016-3 (Sapphire 3)
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (sf) from A (high) (sf)
-- Class D upgraded to A (high) (sf) from BBB (high) (sf)
-- Class E upgraded to A (sf) from BBB (low) (sf)
The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performances, in terms of delinquencies, defaults and losses.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancements to the rated notes to cover the expected losses at their respective rating levels.
Sapphire 2 and Sapphire 3 closed in November 2016 and December 2016, respectively. Both transactions are securitisations of French residential mortgage loans related to debt consolidation, originated and serviced by My Money Bank S.A. (previously, GE Money Bank S.C.A).
The majority of variable-rate mortgages in the portfolio fall under the Instalment Protection Mechanism, whereby the borrowers’ monthly instalments are protected from the full extent of interest rate rises that would otherwise lead to an increased instalment. The monthly instalments are recalculated on an annual basis, with the amount of any increase linked to the current inflation. When interest rates are flat or declining, the monthly instalment amount will remain constant.
The transactions have unique structures where interest and principal receipts are reallocated to the Issuers revenue and principal funds in order to enable the amortisation of the notes based on a schedule defined at the close of the transactions.
Please refer to each transaction’s rating report, on DBRS Morningstar’s website at www.dbrs.com for further details on the reallocation of collections and the amortisation mechanism of the notes.
On 22 October 2019, DBRS Morningstar transferred the ongoing coverage of the ratings assigned to the Issuers to DBRS Ratings GmbH from DBRS Ratings Limited. The lead analyst responsibilities for both transactions have been transferred to Shalva Beshia.
Both DBRS Ratings Limited and DBRS Ratings GmbH are registered with the European Securities and Markets Authority (ESMA) under Regulation (EC) No. 1060/2009 on Credit Rating Agencies, as amended, and are registered Nationally Recognized Statistical Rating Organization (NRSRO) affiliates in the United States and Designated Rating Organization (DRO) affiliates in Canada.
PORTFOLIO PERFORMANCE AND ASSUMPTIONS
SAPPHIRE 2
As of September 2019, loans with two- to three-months in arrears represented 0.4% of the outstanding portfolio balance, down from 0.5% in September 2018. At that time, the 90+ days delinquency ratio was 1.3%, up from 1.2% in September 2018 and the cumulative loss ratio was 0.3%. DBRS Morningstar updated the base case PD and LGD assumptions for the remaining collateral pool to 8.9% and 0.7%, respectively.
SAPPHIRE 3
As of September 2019, loans with two- to three-months in arrears represented 0.5% of the outstanding portfolio balance, unchanged since September 2018. At that time, the 90+ days delinquency ratio was 1.4%, up from 1.2% in September 2018 and the cumulative loss ratio was 0.3%. DBRS Morningstar updated the base case PD and LGD assumptions for the remaining collateral pool to 9.6% and 1.9%, respectively.
The base case LGD assumption for Sapphire 3 is higher as a result of the pool having a higher loan-to-value ratio than Sapphire 2.
CREDIT ENHANCEMENT
The credit enhancement available to all the rated notes has increased in both transactions as the transactions deleverage. The sources of credit enhancement to each class of notes are the subordinated notes and the Non-Liquidity Reserve Fund portion of the Total Reserve Fund.
The Total Reserve Fund is split into two components, the Liquidity Reserve Fund and the Non-Liquidity Reserve Fund, which are available to cover senior fees, interest on the rated notes and principal on the rated notes (via the principal deficiency ledgers). Amounts released due to the amortisation of the Liquidity Reserve Fund in each transaction are added to the Non-Liquidity Reserve Fund, accelerating the increase in credit enhancements to each class of rated notes. The Total Reserve Funds are currently at their non-amortising target amount of EUR 20.0 million and 17.8 million for Sapphire 2 and Sapphire 3, respectively.
For Sapphire 2, as of the September 2019 payment date, the credit enhancement available to Class A, B, C, D and E notes were 36.6%, 29.3%, 23.4%, 19.3% and 15.7%, respectively. As of the September 2018 payment date, the credit enhancement available to Class A, B, C, D and E notes were 27.9%, 22.2%, 17.6%, 14.4% and 11.6%, respectively.
For Sapphire 3, as of the September 2019 payment date, the CE available to Class A, B, C, D and E notes were 25.5%, 19.4%, 13.7%, 11.4% and 10.5%, respectively. As of the September 2018 payment date, the credit enhancement available to Class A, B, C, D and E notes were 19.6%, 14.7%, 10.2%, 8.4% and 7.6%, respectively.
Société Générale, S.A. acts as the main account bank provider to both transactions. Based on DBRS Morningstar’s account bank reference rating of Société Générale, S.A. of A (high), which is two notches below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) of AA, the downgrade provisions outlined in the transactions documents, and other mitigating factors inherent in the transactions structures, DBRS Morningstar considers the risk arising from the exposure to the account bank in both transactions to be consistent with the ratings assigned to the Class A notes of each transaction, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
HSBC Bank plc acts as the swap counterparty to Sapphire 2. HSBC Bank plc’s DBRS Morningstar private rating is above the first rating threshold as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A notes in Sapphire 2.
BNP Paribas S.A. acts as the swap counterparty to Sapphire 3. BNP Paribas S.A.’s DBRS Morningstar Long Term COR of AA (high) is above the first rating threshold as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A notes in Sapphire 3.
The transactions structures were analysed in Intex DealMaker.
Notes:
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology”. DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.
A review of the transactions legal documents were not conducted as the legal documents have remained unchanged since the most recent rating actions.
Other methodologies referenced in both transactions are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
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 Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports provided by EuroTitrisation, the management company, and loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was 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 actions on both transactions took place on 16 November 2018, when DBRS Morningstar took the following rating actions:
SAPPHIRE 2
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AAA (sf) from AA (high) (sf)
-- Class C upgraded to AA (high) (sf) from AA (sf)
-- Class D upgraded to AA (sf) from AA (low) (sf)
-- Class E upgraded to AA (low) (sf) from A (sf)
SAPPHIRE 3
-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to A (high) (sf) from A (sf)
-- Class D upgraded to BBB (high) (sf) from BBB (sf)
-- Class E confirmed at BBB (low)
The lead analyst responsibilities for both transactions have been transferred to Shalva Beshia.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transactions parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performances may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- For Sapphire 2, the base case PD and LGD assumptions for the collateral pool are 8.9% and 0.7%, respectively.
-- For Sapphire 3, the base case PD and LGD assumptions for the collateral pool are 9.6% and 1.9%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumptions. For example, in Sapphire 2 transaction, if the LGD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A would still be expected to remain at AAA (sf).
Rating Sensitivities per transaction:
SAPPHIRE 2
Class A Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AAA (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
Class B Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AAA (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
Class C Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AA (high) (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AA (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AA (high) (sf)
Class D Risk Sensitivity:
-- 25% increase of the PD, expected rating of AA (sf)
-- 50% increase of the PD, expected rating of AA (low) (sf)
-- 25% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the LGD, expected rating of AA (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of A (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (sf)
Class E Risk Sensitivity:
-- 25% increase of the PD, expected rating of A (low) (sf)
-- 50% increase of the PD, expected rating of BBB (sf)
-- 25% increase of the LGD, expected rating of A (high) (sf)
-- 50% increase of the LGD, expected rating of A (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of BBB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of BBB (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of BBB (low) (sf)
SAPPHIRE 3
Class A Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AAA (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AAA (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AA (high) (sf)
Class B Risk Sensitivity:
-- 25% increase of the PD, expected rating of AAA (sf)
-- 50% increase of the PD, expected rating of AA (high) (sf)
-- 25% increase of the LGD, expected rating of AAA (sf)
-- 50% increase of the LGD, expected rating of AA (high) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of AA (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of AA (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of AA (sf)
Class C Risk Sensitivity:
-- 25% increase of the PD, expected rating of AA (sf)
-- 50% increase of the PD, expected rating of A (high) (sf)
-- 25% increase of the LGD, expected rating of AA (sf)
-- 50% increase of the LGD, expected rating of AA (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of AA (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of A (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of A (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of A (low) (sf)
Class D Risk Sensitivity:
-- 25% increase of the PD, expected rating of A (high) (sf)
-- 50% increase of the PD, expected rating of A (low) (sf)
-- 25% increase of the LGD, expected rating of A (high) (sf)
-- 50% increase of the LGD, expected rating of A (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of A (low) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of BBB (high) (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of BBB (sf)
Class E Risk Sensitivity:
-- 25% increase of the PD, expected rating of A (low) (sf)
-- 50% increase of the PD, expected rating of BBB (high) (sf)
-- 25% increase of the LGD, expected rating of A (sf)
-- 50% increase of the LGD, expected rating of A (low) (sf)
-- 25% increase of the PD and 25% increase of the LGD, expected rating of BBB (high) (sf)
-- 50% increase of the PD and 25% increase of the LGD, expected rating of BBB (sf)
-- 25% increase of the PD and 50% increase of the LGD, expected rating of BBB (high) (sf)
-- 50% increase of the PD and 50% increase of the LGD, expected rating of BBB (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 20 October 2016 (Sapphire 2)
Initial Rating Date: 8 December 2016 (Sapphire 3)
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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Ratings issued and monitored by DBRS Ratings GmbH are noted as such on the DBRS website; however, the language and related statements in previously published press releases in respect of the relevant ratings will not be changed retroactively and will remain as part of DBRS’s historical record. The ratings issued and monitored in the European Union are marked as such in their respective rating tables. As part of this transfer, these markings will remain unchanged on all active ratings related to the Issuers.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Structured Finance Surveillance Methodology
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on these credits or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.
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