DBRS Morningstar Assigns Provisional Ratings to Jubilee Place 4 B.V.

DBRS Ratings GmbH (DBRS Morningstar) assigned provisional ratings to the following classes of loan and notes to be issued by Jubilee Place 4 B.V. (the Issuer):

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

DBRS Morningstar does not rate the Class F, Class X, or Class R notes also expected to be issued in this transaction.

The provisional rating of the Class A Loan addresses the timely payment of interest and the ultimate payment of principal by the legal final maturity date in July 2059. The provisional rating of the Class B notes addresses the timely payment of interest when most senior and the ultimate payment of principal by the legal final maturity date in July 2059. The provisional ratings of the Class C to Class E notes address the ultimate payment of interest and principal by the legal final maturity date in July 2059.

The provisional ratings are based on information provided to DBRS Morningstar by the Issuer and its agents as of the date of this press release. These ratings will be finalised upon a review of the final version of the transaction documents and of the relevant opinions. If the information therein were substantially different, DBRS Morningstar may assign different final ratings to the loan and notes.

Jubilee Place 4 B.V. will be a bankruptcy-remote special-purpose vehicle incorporated in the Netherlands. The Issuer will use the proceeds from the class A loan and issued notes to fund the purchase of Dutch mortgage receivables originated by Dutch Mortgage Services B.V., DNL 1 B.V., and Community Hypotheken B.V (the Originators), which will be acquired from Citibank, N.A., London Branch (the Seller).

The Originators are specialised residential buy-to-let (BTL) real estate lenders operating in the Netherlands and started their lending businesses in 2019. They operate under the mandate of Citibank, which defines most of the underwriting criteria and policies.

RATING RATIONALE

As of 30 April 2022, the provisional portfolio consisted of 1,112 loans with a total portfolio balance of approximately EUR 372.2 million. The weighted-average (WA) seasoning of the portfolio is 0.2 years with a WA remaining term of 34.2 years. The WA current loan-to-value ratio, at 74.4%, is slightly above that of other Dutch BTL RMBS transactions. The loan parts in the portfolio are either interest-only loans (75.3%) or annuity mortgage loans (24.7%). A significant portion of the loans were granted for the purpose of equity release (47.7%). All of the loans in the portfolio are fixed with a compulsory future switch to floating. The loan and notes pay a floating rate. To address this interest rate mismatch, the transaction is structured with a fixed-to-floating interest rate swap where the Issuer pays a fixed rate and receives three-month Euribor over a notional, which is a defined amortisation schedule. There are no loans in arrears in the portfolio.

DBRS Morningstar calculated the credit enhancement for the Class A Loan at 14.5%, which is provided by the subordination of the Class B to Class F notes. Credit enhancement for the Class B notes will be 8.5% and will be provided by the subordination of the Class C to Class F notes. Credit enhancement for the Class C notes will be 5.75% and will be provided by the subordination of the Class D to Class F notes. Credit enhancement for the Class D notes will be 3.75% and will be provided by the subordination of the Class E to Class F notes. Credit enhancement for the Class E notes will be 1.25% and will be provided by the subordination of the Class F notes.

The transaction benefits from an amortising liquidity reserve fund that can be used to cover shortfalls on senior expenses and interest payments on the Class A Loan. The LRF will be partially funded at closing at 0.5% of the initial balance of the Class A Loan and will build up until it reaches its target of 1% of the outstanding balance of the Class A Loan. The LRF is floored at 0.5% of the initial balance of the Class A Loan. The LRF indirectly provides credit enhancement for the class A loan and all classes of notes, as released amounts will be part of the principal available funds.

Additionally, the loan and notes will be provided with liquidity support from principal receipts, which can be used to cover senior expenses and interest shortfalls on the class A loan or the most-senior class of notes once the class A loan has been fully repaid.

The Issuer will enter into a fixed-to-floating swap with BNP Paribas (rated 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. The notional of the swap is a pre-defined amortisation schedule of the assets. The Issuer will pay a fixed swap rate and receives three-month Euribor in return. The swap documents are in line with DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Issuer Account Bank is Citibank Europe plc, Netherlands Branch. Based on DBRS Morningstar’s private rating on the account bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the loan and notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar based its ratings primarily on the following considerations:

-- The transaction 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 loan and notes according to the terms of the transaction documents. DBRS Morningstar analysed the transaction cash flows using PDs 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 a 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 loan and 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
Emissions, Effluents & Waste is a relevant ESG factor. A Green Energy Label discount of 0.10% is applied to the interest rate/interest rate margin of loans backed by properties with an energy label of A or B at origination. For loans associated with properties with an energy label below B, a 0.15% discount is applied to their rates where the energy label has improved at least one notch within the first 6 months since origination. The lower interest rate has a positive impact on our default assumptions.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in Euro 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 materially deviated from its “European RMBS Insight: Dutch Addendum” methodology when determining the ratings assigned to the Class B to Class E notes by applying a custom high CPR vector instead of the standard high CPR stress of 20% from day one. The use of this custom high CPR vector results in higher ratings. The material deviation is warranted given the concentration of fixed-rate loans with an early repayment charge during the fixed period in this portfolio. DBRS Morningstar hence expects prepayment rates to remain low during the fixed-rate period and increase when borrowers come to the end of their fixed-rate period. To reflect this DBRS Morningstar assumed a custom high CPR vector with CPR rates below 20% while loans are in a fixed-rate period followed by a period of CPR rates exceeding 20% when most loans in the portfolio come to the end of the fixed-rate period.

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 used for these ratings include Dutch Mortgage Services B.V., DNL 1 B.V., and Community Hypotheken B.V and its agents. DBRS Morningstar was provided with loan-level data as of 30 April 2022 and historical performance data of the originator’s loan book (outstanding balance, delinquencies by number of months in arrears, and total unscheduled periodic prepayments) from November 2019 to March 2022.

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

DBRS Morningstar was supplied with one or more third-party assessments. DBRS Morningstar did not apply additional cash flow stresses in its 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 new 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.

Sensitivity Analysis: 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 Loan, a PDR of 33.06% and LGD of 32.35%, 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 27.83% and LGD of 24.56%, corresponding to the AA (low) (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 23.10% and LGD of 18.65%, corresponding to the A (low) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class D notes, a PDR of 19.73% and LGD of 14.20%, corresponding to the BBB (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class E notes, a PDR of 9.74% and LGD of 10.55%, corresponding to the B (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 Loan:
-- 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 not lead to a downgrade of the Class A Loan;
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (high) (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 AA (low) (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 (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 A (high) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (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 (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 (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 (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf);

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

DBRS Morningstar concludes the following impact on the Class E notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (low) (sf);
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to CCC (sf);
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to the Class C notes not being rated;

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: Alejandro Tendero Delicado, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 10th June 2022

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- European RMBS Insight Methodology (28 March 2022) and European RMBS Insight Model v.5.5.0.2., https://www.dbrsmorningstar.com/research/394309/european-rmbs-insight-methodology
-- European RMBS Insight: Dutch Addendum (7 March 2022), https://www.dbrsmorningstar.com/research/393357/european-rmbs-insight-dutch-addendum.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021), https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021), https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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.