DBRS Morningstar Assigns Provisional Rating to Green Apple 2021-I B.V.

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AAA (sf) to the Class A notes to be issued by Green Apple 2021-I B.V. (Green Apple 2021-I or the Issuer). The transaction is a securitisation collateralised by a portfolio of Dutch residential mortgage loans granted by Argenta Spaarbank N.V. (Argenta or the Originator) in the Netherlands. The mortgages were originated and serviced by Argenta, with Quion Services B.V. acting as sub-mortgage payment transactions provider.

The provisional rating on the Class A notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date in July 2060.

The Issuer is expected to issue two tranches of mortgage-backed securities (the Class A and Class B notes) to finance the purchase of Dutch residential mortgage loans secured by properties in the Netherlands. Additionally, Green Apple 2021-I is expected to issue the Class C notes, which are noncollateralised and whose proceeds will be used to fund the Reserve Fund and to cover initial costs and expenses. DBRS Morningstar does not rate the Class B or the Class C notes in this transaction.

The coupon on the Class A notes will be three-month Euribor plus [•]%. From the payment date falling in July 2028, which is also the first optional redemption date (FORD), the coupon will be capped at [•]%. Any excess of three-month Euribor over 5.0% will then be payable as a subordinated additional interest amount. The additional interest amounts are not rated by DBRS Morningstar.

Credit support to the Class A notes is sized at 14.0% and is provided by subordination and a nonamortising Reserve Fund. The Reserve Fund is expected to be funded with EUR [•] million equal to at 1.3% of the Class A and B notes’ outstanding balance as of the closing date. Liquidity support for the Class A notes is further provided through a Cash Advance Facility as well as principal borrowed to support revenue items with a corresponding debit to the appropriate principal deficiency ledger. The Cash Advance Facility will amortise with no performance conditions attached. It is expected to be sized at the maximum of 1.0% of the Class A and Class B notes’ outstanding balance with a floor of 0.75% of the Class A and Class B notes’ outstanding balance as of the closing date. The Cash Advance Facility is a 364-day contract and, if it is not renewed, it will be drawn by the Issuer.

As of 31 March 2021, the provisional portfolio consisted of 7,973 loans extended to 4,341 borrowers with an aggregate principal balance of EUR 951.1 million. The mortgage loans in the asset portfolio are all classified as owner occupied and are secured by a first-ranking mortgage right. The provisional portfolio contains 38.0% interest-only loans, and 7.8% of the loans were granted to self-employed borrowers. All mortgage loans are performing as of the cut-off date.

Within the provisional mortgage portfolio, 99.4% of the loans currently pay a fixed rate of interest with the most common reset frequencies of 20 and 10 years. In comparison, the Class A notes pay an interest rate linked to three-month Euribor, which resets on a quarterly basis. The Issuer’s fixed-floating risk exposure is hedged through an interest rate cap agreement with Société Générale, S.A. (Long-Term Issuer Rating of A (high) and Long Term Critical Obligations Rating of AA with Stable trends by DBRS Morningstar) that references the aggregate current balance of the Class A notes with an amortisation based on 2.0% Constant Prepayment Rate (CPR) per annum (the cap notional amount) and pays the Issuer the positive difference between three-month Euribor and the cap strike rate multiplied by the cap notional amount. The Interest Rate Cap Agreement will be effective up to but excluding the payment date in [July 2031], which will be 10 years from closing. From the FORD, the coupon on the Class A notes will be capped already so that no incremental exposure to interest rate risk arises.

Based on DBRS Morningstar’s ratings on Société Générale, S.A., the downgrade provisions outlined in the documents, and the transaction structural mitigants, DBRS Morningstar considers the risk arising from the exposure to Société Générale, S.A. to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's “Derivative Criteria for European Structured Finance Transactions” methodology.

All payments made by borrowers on the mortgage loans are paid into the Originator Collection Account maintained with the Originator Collection Account Provider, ABN AMRO Bank N.V. (ABN AMRO), and in the name of the Originator. As of the date of this report, this account is not pledged to any party other than to the Originator Collection Account Bank pursuant to the applicable terms and conditions.

The Issuer will maintain with BNG Bank N.V. (BNG) the Issuer Collection Account to which all amounts received in respect of the mortgage loans and from the other parties to the transaction documents will be paid (other than any amounts received under the transaction documents to be deposited into the Cash Advance Facility Standby Drawing Account and the Interest Rate Cap Collateral Account) as well as the reserve account. BNG will be replaced as account bank within 30 calendar days if it is downgraded below “A”.

If the Issuer is required to make a Cash Advance Facility Standby Drawing, it will credit such amount to the Cash Advance Facility Standby Drawing Account maintained with the Issuer Account Bank. The Issuer may use amounts so credited to the Cash Advance Facility Standby Drawing Account in the same manner as a drawing under the Cash Advance Facility Agreement. Pursuant to the Issuer Account Agreement, the Issuer Account Bank will agree to pay a guaranteed rate of interest determined by reference to euro short-term rate minus a margin on the balance standing from time to time to the credit of the Cash Advance Facility Standby Drawing Account. Should the interest rate fall below zero, the Issuer would be required to make interest payments to the Issuer Account Bank; such payments may be made on other dates than the Notes Payment Dates. The transaction documents include DBRS Morningstar’s rating and downgrade provisions for the Issuer Account Bank and the Cash Advance Facility Provider. As of the date of assignment of the rating, based on (1) DBRS Morningstar’s private rating on BNG, (2) the downgrade provisions outlined in the transaction documents, and (3) the structural mitigants provided, DBRS Morningstar considers the risk arising from the exposure to BNG to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar based its ratings on a review of the following analytical considerations:

-- The transaction’s capital structure and form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. DBRS Morningstar calculated the probability of default (PD), loss given default (LGD), and expected loss outputs on the mortgage portfolio, which are used as inputs into the cash flow tool. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s “European RMBS Insight: Dutch Addendum”.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A notes according to the terms of the transaction documents.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents.
-- DBRS Morningstar’s sovereign rating on the Kingdom of Netherlands at AAA with a Stable trend as of the date of this press release.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions addressing the assignment of the assets to the Issuer.
-- 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 continue to increase in the coming months for many residential mortgage-backed security (RMBS) transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, additional stresses to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The transaction structure was analysed in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.

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 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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.

On 5 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the ratings of DBRS Morningstar-rated RMBS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360599/european-rmbs-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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

DBRS Morningstar notes that the above press release was amended on 23 July 2021 to reflect the correct risk sensitivities for the Class A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are the “European RMBS Insight Methodology” (2 April 2020) and the “European RMBS Insight: Dutch Addendum” (4 May 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

DBRS Morningstar has applied the principal methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

An asset and a cash flow analysis were both conducted.

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 Argenta and ABN AMRO. DBRS Morningstar was provided with loan-level data as of 31 March 2021 and historical monthly performance data (delinquencies and prepayment data) covering the period from January 2010 to February 2021 for delinquencies and from May 2013 to March 2021 for prepayments. In addition, DBRS Morningstar received static default data ranging from 2007 to 2020 and a small set of repossession data.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

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.

These ratings concern expected to be issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

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 with the parameters used to determine the ratings (the Base Case):

-- In respect of the Class A notes, a PD of 15.8% and LGD of 27.5%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ronja Dahmen, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 26 May 2021

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

-- European RMBS Insight Methodology (2 April 2020) and European RMBS Insight Model v. 5.1.0.1., https://www.dbrsmorningstar.com/research/359192/european-rmbs-insight-methodology.
-- European RMBS Insight: Dutch Addendum (4 May 2021), https://www.dbrsmorningstar.com/research/377934/european-rmbs-insight-dutch-addendum.
-- Legal Criteria for European Structured Finance Transactions (6 April 2021), https://www.dbrsmorningstar.com/research/376314/legal-criteria-for-european-structured-finance-transactions.
-- 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.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020), https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/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: https://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.