Press Release

DBRS Morningstar Finalises Provisional Ratings on Prinsen Mortgage Finance No. 1 B.V.

RMBS

May 03, 2022

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by Prinsen Mortgage Finance No. 1 B.V. (the Issuer):

-- Class A notes at AAA (sf)
-- Class B notes at AA (sf)
-- Class C notes at A (sf)

The final rating on the Class A notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in December 2070. The final ratings on the Class B and Class C notes address the timely payment of interest when most senior and the ultimate repayment of principal by the legal final maturity in December 2070.

DBRS Morningstar does not rate the Class X or the RS notes also issued in this transaction.

The margin payable on the Class A, Class B, and Class C notes will step up on the interest payment date falling in December 2026, which is also the first optional redemption date (FORD). However, DBRS Morningstar's final ratings do not address the increase in the margin payable on the Class A, Class B, and Class C notes after the FORD. The increased margin of the Class A, Class B, and Class C notes is subordinated in the revenue priority of payments.

The Issuer is a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The Issuer has used the proceeds from the issuance of the notes to fund the purchase of Dutch residential mortgage receivables from each of the two Sellers (Athora Lux Invest - Duration Fund and the Athora Lux Invest - Duration Fund AB). The Issuer also used the proceeds from the issuance of the notes to fund the general reserve fund (GRF) at closing.

The mortgage receivables included in the portfolio were, prior to the closing date, sold by Fenerantis B.V. (Fenerantis or the Originator) to Purple SPV (Purple). On the closing date, Purple transferred the legal title to (1) a pool of mortgage receivables to the Athora Lux Invest - Duration Fund (the German Portfolio) and (2) a separate pool of mortgage receivables to the Athora Lux Invest - Duration Fund AB (the Belgian Portfolio), in each case by way of undisclosed assignment. Subsequently, the Athora Lux Invest - Duration Fund and the Athora Lux Invest - Duration Fund AB (together, the Sellers) sold and assigned their legal titles to the portfolio to the Issuer on the closing date.

RATING RATIONALE
As of 31 March 2022, the final portfolio consisted of 3,250 loan parts with a total portfolio balance of approximately EUR 350.0 million. The weighted-average (WA) seasoning of the portfolio is 1.8 years with a WA remaining term of 27.6 years. At 58.4%, the WA current indexed loan-to-value ratio is comparatively low for a Dutch portfolio.

All of the loans in the portfolio are fixed rate with future resets while the notes pay a floating rate of interest. To address this interest rate mismatch, the transaction is structured with a fixed-to-floating interest rate swap that swaps the fixed interest rate received from the assets for the floating interest on the notes, senior fees, and expenses the issuer owes, and a fixed excess spread of 0.45%. No loans were in arrears as of 31 March 2022.

Until the FORD, the relevant Seller has the ability to offer for sale and assignment any further advance receivables, non-first mortgage receivables, and ported mortgage receivables (Additional Receivables) granted by the Originator subject to their adherence to additional purchase conditions and available principal funds. The purchase of Additional Receivables per calculation period is capped at (1) 1% of the sum of the aggregate outstanding principal amount on the initial cut-off date less (2) the aggregate outstanding principal amount of the receivables sold to the Issuer during the three immediately preceding monthly calculation periods. The final portfolio includes 1.0% of further advance loans.

DBRS Morningstar calculated credit enhancement for the Class A notes at 3.25%, provided by the subordination of the Class B and Class C notes. Credit enhancement for the Class B notes will be 1.5%, provided by the subordination of the Class C notes.

The transaction benefits from the GRF, which is split into a Credit Reserve Fund (CRF) and a Liquidity Reserve Fund (LRF). The CRF has been funded at closing with 0.75% of the Class A to Class C notes’ initial balance minus the LRF and will be available to pay senior fees and expenses, as well as interest shortfalls and PDLs for the Class A to Class C notes.

The LRF will be available to pay senior fees and expenses, as well as interest shortfalls on the Class A and Class B notes. The LRF has been funded at closing through the issuance of the notes and will be 0.75% of the Class A and Class B notes’ outstanding balance. The LRF will amortise in line with the Class A and Class B notes’ outstanding balances with a minimum required amount of EUR 200,000.

The issuer has entered into a fixed-to-floating swap agreement with BNP Paribas SA (Long Term Critical Obligations Rating of AA (high) with a Stable trend by DBRS Morningstar) to mitigate the fixed interest rate risk from the mortgage loans and the three-month Euribor payable on the notes. Under the swap agreement, the Issuer pays to the swap counterparty the scheduled interest due on the mortgages and the transaction account plus any prepayment penalties, less senior fees and expenses the Issuer owes, less excess spread of 0.45% per annum of the principal amount outstanding of each collateralised class of notes less the debit balance on the PDL of such notes. In turn, the swap counterparty pays to the Issuer the interest due on the principal amount outstanding of each collateralised class of notes less the debit balance on the PDL of such notes.

If the interest payable on the notes is negative, the Issuer is not expected to pay such amount to the swap counterparty. The swaps payment in such case will be zero. DBRS Morningstar’s rating of BNP Paribas is in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology. If BNP Paribas is downgraded below the first required rating threshold (long-term rating of “A”) or the second required rating threshold (long-term rating of BBB ), the counterparty will be required to take certain remedial measures as outlined in the interest rate swap agreements, consistent with DBRS Morningstar’s methodology.

The Issuer maintains with ABN AMRO Bank N.V. (ABN AMRO) the issuer collection account to which all amounts received in respect of the mortgage loans and from the other parties to the transaction documents are paid (other than any amounts received under the transaction documents to be deposited into the swap collateral account) as well as the reserve account. DBRS Morningstar rates ABN AMRO with a Long-Term Issuer Rating of A (high) and a Long Term Critical Obligations Rating of AA. ABN AMRO will be replaced as the account bank within 30 calendar days if it is downgraded below “A”. Based on DBRS Morningstar’s rating of ABN AMRO, the downgrade provisions outlined in the transaction documents, and the transaction structural mitigants, DBRS Morningstar considers the risk arising from the exposure to ABN AMRO to be consistent with the ratings assigned to the rated notes, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar based its ratings primarily on the following:
-- The transaction’s capital structure, form, and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage loan portfolio and the ability of the servicer to perform collection activities. DBRS Morningstar calculated portfolio default rates (PDs), loss given default (LGD), and expected loss (EL) outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes according to the terms of the transaction documents. DBRS Morningstar analysed the transaction cash flows using PD and LGD outputs provided by DBRS Morningstar’s European RMBS Insight Model. DBRS Morningstar analysed transaction cash flows using Intex DealMaker.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the notes.
-- 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.
-- DBRS Morningstar's sovereign rating on the Kingdom of Netherlands at AAA with a Stable trend as of the date of this report.

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 methodologies applicable to the ratings are “European RMBS Insight Methodology” (28 March 2022) and “European RMBS Insight: Dutch Addendum” (7 March 2022).

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.

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 used for these ratings include Natixis, Fenerantis B.V., and their agents. DBRS Morningstar was provided with loan-level data as of 31 March 2022 and historical performance data (dynamic delinquencies for one to three months, dynamic delinquencies for three+ months, dynamic prepayment rates and cumulative prepayments, cumulative default, and cumulative recovery rates for the period from November 2016 until December 2021. In addition, DBRS Morningstar also received historical borrower utilisation rates of the Additional Receivables from November 2016 until December 2021).

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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

This is the first rating action since the Initial Rating Date.

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

-- In respect of the Class A notes, a PDR of 15.4% and LGD of 25.7%, corresponding to the AAA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class B notes, a PDR of 12.3% and LGD of 20.6%, corresponding to the AA (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C notes, a PDR of 9.1% and LGD of 15.5%, corresponding to the A (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).

DBRS Morningstar concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

DBRS Morningstar concludes the following impact on the Class C notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to 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: 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, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 6 April 2022

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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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