DBRS Morningstar Confirms Ratings of Towd Point Mortgage Funding 2019-Granite5 Plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings of the Notes issued by Towd Point Mortgage Funding 2019-Granite5 Plc (the Issuer) as follows:

-- Class A notes at AAA (sf)
-- Class B notes at AA (sf)
-- Class C notes at A (low) (sf)
-- Class D notes at BBB (sf)
-- Class E notes at BB (high) (sf)
-- Class F notes at B (sf)

The rating of the Class A notes addresses the timely payment of interest and full payment of principal by the legal final maturity date. The rating of the Class B notes addresses the ultimate payment of interest and principal, and timely payment of interest while the senior-most class outstanding. The ratings of the Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and principal on or before the legal final maturity date in July 2044.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the October 2020 payment date.
-- Portfolio default rate (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The Issuer is a securitisation of UK unsecured consumer loans offered to borrowers at the same time they took out a mortgage loan offered by the Originator, Landmark Mortgages Limited (Landmark, formerly Northern Rock Asset Management plc). The loans were acquired by Cerberus European Residential Holdings B.V. from Landmark and were previously securitised by Towd Point Mortgage Funding 2016-Granite3 plc. The portfolio is serviced by Landmark as Master Servicer who delegated servicing of the loans to Computershare Mortgage Services Limited.

PORTFOLIO PERFORMANCE
As of October 2020, loans that were two to three months in arrears represented 0.6% of the outstanding portfolio balance, loans at least three months in arrears represented 16.5%, and cumulative losses since closing were 2.3%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the current pool of receivables including additional coronavirus-related adjustments and updated its base case PD and LGD assumptions to 34.0% and 100%, respectively.

CREDIT ENHANCEMENT
CE is provided by subordination of the junior notes. DBRS Morningstar excluded the balance of loans at least 12 months in arrears when calculating the CE. As of the October 2020 payment date, Class A CE was 61.0%, up from 49.5% at the DBRS Morningstar initial rating; Class B CE was 56.8%, up from 46.0% at the DBRS Morningstar initial rating; Class C CE was 47.8%, up from 38.6% at the DBRS Morningstar initial rating; Class D CE was 42.2%, up from 34.0% at the DBRS Morningstar initial rating; Class E CE was 35.9%, up from 28.8% at the DBRS Morningstar initial rating; and Class F CE was 31.1%, up from 24.8% at the DBRS Morningstar initial rating.

The transaction benefits from a Liquidity Facility, an amortising Class A Liquidity Reserve Fund, and an Excess Cash Flow Reserve Fund (ECRF). The Liquidity Facility was established at closing, provided by Wells Fargo Bank, N.A. London Branch (privately rated by DBRS Morningstar) and sized at 1.7% of the principal amount outstanding of Class A Notes. The Liquidity Facility covers senior fees and interest payments on Class A Notes up to the Liquidity Facility Cancellation Date. The Class A Liquidity Reserve Fund will cover senior fees and interest payments on Class A Notes from the Liquidity Facility Replacement Date in October 2025 and will be funded by available principal and revenue receipts. It will be amortising and sized at 1.7% of the principal amount outstanding of the Class A Notes. The ECRF will be established from the First Optional Redemption Date (April 2024, if redemption is not exercised) until the Class B to Class F notes have been repaid in full and will be available to pay interest due on the Class B to Class F notes. The ECRF will be funded with available revenue receipts, and relevant amounts will continue to be credited until the Class B to Class F notes are no longer outstanding.

Elavon Financial Services DAC, UK Branch (Elavon) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may increase in the coming months for many ABS and RMBS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

For this transaction, DBRS Morningstar increased its expected PD for self-employed borrowers as well as loans which have previously been restructured, incorporated a moderate reduction in residential property values for the associated secured mortgage parts, and considered reported payment holidays in its cash flow analysis. As of the October 2020 payment date, 13.6% of the outstanding portfolio were in a payment holiday.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

In May 2020, DBRS Morningstar published commentaries outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated RMBS and ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-transactions-risk-exposure-to-coronavirus-covid-19-effect, https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020).

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 at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports and loan-level data provided by U.S. Bank Trustees Limited.

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 action on this transaction took place on 18 November 2019, when DBRS Morningstar finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes at AAA (sf), AA (sf), A (low) (sf), BBB (sf), BB (high) (sf), and B (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies is available at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the rating, 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 performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 34.0% and 100.0%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PDs increase by a certain percentage over the base case assumption. For example, if the PD increases by 50%, the rating of the Class A notes would be expected to fall to BBB (sf), assuming no change in the LGD. If the PD increased by 50%, the rating of the Class A notes would be expected to fall to BBB (sf), assuming no change in the LGD. DBRS Morningstar did not apply increased stress scenarios for LGD, as the LGD for this portfolio is 100%.

Class A Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of BBB (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of BB (high) (sf)
-- 50% increase in PD, expected rating of B (high) (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in PD, expected rating of B (high) (sf)
-- 50% increase in PD, expected rating below B (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in PD, expected rating below B (sf)
-- 50% increase in PD, expected rating below B (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 U.S. regulations only.

Lead Analyst: Clare Wootton, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 13 November 2019

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

-- Legal Criteria for European Structured Finance Transactions (11 September 2019):
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Master European Structured Finance Surveillance Methodology (22 April 2020):
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020): https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers.
-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model version 4.3.1.0:
https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology
-- European RMBS Insight: UK Addendum (9 October 2020): https://www.dbrsmorningstar.com/research/368132/european-rmbs-insight-uk-addendum
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020): https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020):
https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (21 July 2020):
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology

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.