DBRS Morningstar Confirms Ratings of Grand Canal Securities 2 DAC

DBRS Ratings Limited (DBRS Morningstar) confirmed its A (sf), BBB (low) (sf), BB (low) (sf) and B (low) (sf) ratings of the Class A, Class B, Class C and Class D notes issued by Grand Canal Securities 2 DAC (the Issuer).

The rating of the Class A notes addresses timely payment of interest and ultimate payment of principal. The ratings of the Class B, Class C and Class D notes address ultimate payment of interest and ultimate payment of principal. DBRS Morningstar does not rate the Class E1, Class E2, Class E3, Class P and Class F notes.

Proceeds from the issuance of the notes were used to purchase the beneficial title and trust (from trust loans) of first charge (including subsequent charges) performing and non-performing Irish residential mortgage loans from Mars Capital Ireland Holdings DAC (the Seller). As of the 31 October 2017 cut-off date, the mortgage loans had a total outstanding balance of EUR 517.7 million and were originated by Irish Nationwide Building Society and Springboard Mortgages Limited. Primary servicing of the portfolio is undertaken by Mars Capital Finance Ireland DAC (the servicer).

According to the most recent investor report issued in October 2019, the principal amounts outstanding of the Class A, Class B, Class C and Class D notes were equal to EUR 168.9 million, EUR 9.3 million, EUR 10.1 million, and EUR 11.9 million, respectively. The balance of the Class A notes amortised by approximately 27% since issuance. The current aggregated transaction balance is equal to EUR 455.6 million.

As of October 2019, the actual cumulative gross collections after closing are equal to EUR 66.6 million. The initial business plan provided by the servicer assumed total gross collections for EUR 92.2 million during the same period, which is 25.7% higher than the amount collected so far.

At issuance, DBRS Morningstar estimated cumulative gross collections as of October 2019 of EUR 43.6 million in the ”A” scenario, EUR 49.2 million in the BBB (low) scenario, EUR 56.6 million in the BB (low) scenario and EUR 63.0 million in the B (low) stressed scenario in a flat interest rate environment; and of EUR 45.0 million in the “A” scenario, EUR 50.1 million in the BBB (low) scenario, EUR 57.2 million in the BB (low) scenario and EUR 63.5 million in the B (low) stressed scenario in a rising interest rate environment, all of which are lower than the actual cumulative gross collections to date.

The transaction benefits from four reserve funds which provide liquidity support to the rated notes: the Class A reserve fund, which was funded to an initial balance equal to 3.0% of the Class A notes and can amortise to 3.0% of the outstanding balance of the Class A notes; the Class B reserve fund, whose initial amount was equal to 7% of the initial Class B notes balance and does not have a target amount; the Class C reserve fund, whose initial amount was equal to 12% of the initial Class C notes balance and does not have a target amount; and the Class D reserve fund, whose initial amount was equal to 15% of the initial Class D notes balance and does not have a target amount. Credits to the Class B, C and D reserves are made outside of the waterfall based on the proceeds of the interest rate cap allocated proportionately to the respective size of the Class B, C and D notes relative to the cap notional. According to the latest investor report dated October 2019, the Class A reserve fund amounted to EUR 5.1 million, which is in line with the target balance, and the Class B, Class C and Class D notes reserve fund balance amounted to EUR 0.4 million, EUR 0.7 million and EUR 1.0 million, respectively.

Since closing, the total outstanding balance of the mortgage portfolio has been reduced by EUR 74.9 million. The most recent reported current outstanding balance as of October 2019 was EUR 442.7 million compared with EUR 517.6 million at cut-off date. The portfolio continues to be mainly concentrated in the same areas as at issuance, with Dublin representing the largest concentration of assets in the pool with 19.6% by current outstanding balance (20.4% at issuance).

The ratings are based on DBRS Morningstar’s analysis of the projected recoveries of the underlying collateral, the historical performance and expertise of the servicer, the availability of liquidity to fund interest shortfalls and special-purpose vehicle expenses, the cap agreement with HSBC Bank Plc and the transaction’s legal and structural features.

The transaction’s final maturity date is in December 2058.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.

DBRS Morningstar 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 rating action.

Other methodologies referenced in this transaction 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 Mars Capital Ireland Holdings DAC and its agents.

DBRS Morningstar did not rely upon third-party due diligence 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 were 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 30 November 2018 when DBRS Morningstar confirmed its ratings of the Class A, Class B Class C and Class D notes.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- The expected principal and interest collection at A (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at BBB (low) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at BB (low) (sf) rating level, a 5% and 10% reduction in the expected collections.
-- The expected principal and interest collection in a rising interest scenario at B (low) (sf) rating level, a 5% and 10% reduction in the expected collections.

-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class A notes to BBB (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class A notes to BB (sf).

-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class B notes to BB (low) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class B notes to B (low) (sf).

-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class C notes to B (low) (sf).
-- DBRS concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class C notes to below B (low) (sf).

-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 5%, ceteris paribus, would lead to a downgrade of the rating of Class D notes to below B (low) (sf).
-- DBRS Morningstar concludes that a hypothetical decrease of the expected principal and interest collections by 10%, ceteris paribus, would lead to a downgrade of the rating of the Class D notes to below B (low) (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 Limited are subject to EU and US regulations only.

Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 November 2017

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology
-- Rating European Non-Performing Loans Securitisations
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- European CMBS Rating and Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

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 this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.