Press Release

DBRS Morningstar Assigns Ratings to LSF11 Boson Investments S.à r.l. (Compartment 2), Negative Trends

Nonperforming Loans

December 09, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned ratings to the following classes of notes issued by LSF11 Boson Investments S.à r.l. (Compartment 2) (the Issuer) in European Residential Loan Securitisation 2021-NPL1 (the Transaction):

-- Class A1 at A (low) (sf)
-- Class A2 at BBB (high) (sf)
-- Class B at BB (high) (sf)
-- Class C at BB (sf)

All trends are Negative.

DBRS Morningstar did not rate the Class P or Class D Notes (together with Class A1, Class A2, Class B and Class C notes, the Notes) also issued in the Transaction.

The rating on the Class A1 and Class A2 notes (the Class A Notes) addresses the timely payment of interest and the ultimate repayment of principal by the final legal maturity date. The ratings on the Class B and Class C notes address the ultimate payment of interest and principal by the final legal maturity date. DBRS Morningstar’s ratings do not address payments of Additional Note Payments (as defined in the transaction documents).

The Transaction benefits from an amortising Class A Reserve Fund and from separate nonamortising Class B and Class C Reserve Funds that provide liquidity support to the Class A, Class B, and Class C notes, respectively, and principal support to the rated notes at maturity, if available. The Transaction also benefits from an Issuer Opex Account, an Issuer General Account, and a REO General Account, which provide liquidity support for the payment of operating expenses, corporate costs, servicing fees and expenses, and sub-participation fees since inception.

The Notes are backed by a portfolio consisting of Spanish nonperforming loans (NPL) and real estate-owned assets (REOs) situated in Spain. The total outstanding balance of the NPL portfolio as of the cut-off date (31 July 2021) equalled EUR 626.8 million. The total real estate value (REV) backing the portfolio amounted to EUR 564.9 million and mostly consists of residential properties situated in Spain (93.8% by REV). About 5.4% of the real estate assets by value were already repossessed as of the cut-off date.

Servihabitat Servicios Inmobiliarios, S.L.U. (Servihabitat) services the portfolio. Hudson Advisors Spain, S.L.U. (Hudson) was appointed as asset manager and backup administrator facilitator and, as such, will act in an oversight and monitoring capacity and provide input on asset resolution strategies.

The final maturity date of the Transaction is in November 2060.

RATING RATIONALE
DBRS Morningstar based its rating on a review of the following analytical considerations:
-- The Transaction capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collections and resolution activities. DBRS Morningstar estimated the expected collections from the mortgage loans based on the proposed business plans and used them as an input into its cash flow analysis. The mortgage portfolio was analysed in accordance with DBRS Morningstar’s Rating European Non-Performing Loans Securitisations methodology, European RMBS Insight Methodology, European RMBS Insight: Spanish Addendum, and European CMBS Rating and Surveillance Methodology.
-- The ability of the Transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents.
-- The sovereign rating of the Kingdom of Spain, which DBRS Morningstar rates "A", R-1 (low) with Stable trends 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 and tax opinions addressing the allocation of the portfolio to the Issuer.

DBRS Morningstar analysed the transaction cash flow structure using Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that negative effects may continue in the coming months for many NPL transactions. In particular, the deterioration of macroeconomic conditions could negatively affect recoveries from NPLs and the related real estate collaterals. The rating is based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. The DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

For more information on DBRS Morningstar considerations for European NPL transactions and Coronavirus Disease (COVID-19), please see the following commentaries: https://www.dbrsmorningstar.com/research/381146 and https://www.dbrsmorningstar.com/research/360393.

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.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Nonperforming Loans Securitisations” (19 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 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 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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information provided by the servicer (Servihabitat) and the transaction arranger (Morgan Stanley & Co. International plc) include a loan data tape as of the cut-off date of 31 July 2021, historical sales data covering the period from 2019 to 2021, and the portfolio business plan.

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 are 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 a newly issued financial instrument. These are the first DBRS Morningstar public ratings on this financial instrument.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to confirm the rating (the Base Case):

-- Recovery Rates Used: Cumulative Base Case recovery amount of approximately EUR 267.4 million, EUR 272.5 million, EUR 316.6 million and EUR 322.5 million at the A (low) (sf), BBB (high) (sf), BB (high) (sf) and BB (sf) stress levels, respectively and a 5% and 10% decrease in the Base Case recovery rate.
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 5%, ceteris paribus, would lead to confirmation of the Class A1 and Class B notes to A (low) (sf) and BB (high), respectively, and to a downgrade of the Class A2 and Class C notes to BBB (sf) and BB (low) (sf), respectively.
-- DBRS Morningstar concludes that a hypothetical decrease of the Recovery Rate by 10%, ceteris paribus, would lead to a downgrade of the rated Notes (Class A1, Class A2, Class B and Class C notes) to BBB (high) (sf), BB (high) (sf), BB (sf) and B (high) (sf), respectively.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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: Alberto Cruces de la Rosa, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 December 2021

DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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