DBRS Morningstar Finalises its Provisional Ratings on FT RMBS Green Prado XI

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following classes of notes issued by FT RMBS Green Prado XI (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
-- Class C Notes at A (high) (sf)

The ratings on the Class A and Class B Notes address the timely payment of interest and the ultimate repayment of principal on or before the legal final maturity date in December 2055. The rating on the Class C Notes addresses the ultimate payment of interest and principal on or before the legal final maturity date. DBRS Morningstar does not rate the Class D Notes also issued in this transaction.

The transaction is a securitisation of residential mortgage loans secured by first-lien mortgages originated by the Union de Créditos Inmobiliarios S.A., E.F.C (UCI or the seller) in Spain. At the closing of the transaction, the Issuer used the proceeds from the issuance of the Class A, Class B, Class C, and Class D Notes (collectively, the notes) to fund the purchase of the mortgage portfolio from the seller. UCI provided a separate additional subordinated loan to fund the reserve fund. The securitisation took place in the form of a fund, in accordance with Spanish securitisation law.

The originator and servicer of the transaction is UCI, which is jointly owned by Banco Santander SA (Santander) and BNP Paribas SA (BNP Paribas). BNP Paribas through its subsidiary BNP Paribas S.A. Sucursal en España acts as fund account provider and paying agent.

DBRS Morningstar’s ratings are based on a review of the following analytical considerations:

-- The transaction’s capital structure and the available credit enhancement. The Class A Notes benefit from 28.0% subordination provided by the Class B and Class C Notes. The Class B Notes benefit from 12.0% subordination provided by the Class C and Class D Notes. The Class C Notes benefit from 6.5% subordination provided by the Class D Notes. The notes also benefit from an amortising reserve fund with a target amount equal to 1.5% of the outstanding balance of the mortgage portfolio, funded through a subordinated loan, which could amortise to a level of 0.25% of the original portfolio balance. The reserve fund provides liquidity support and is available to cover senior expenses as well as interest on the Class A, Class B, and Class C Notes (the rated notes). At maturity, the reserve will be available to cover principal payments on the notes.

-- The Class A target amortisation amount is equal to the positive difference between the outstanding principal balance of the notes and the outstanding principal balance of the nondefaulted collateral. If a turbo amortisation event occurs, then all collections will be applied toward repayment of the Class A Notes until paid in full after servicing the senior fees, the interest due on the rated notes (if a Class C interest deferral event has not occurred), and the replenishment of the reserve fund. The Class B target amortisation amount is equal to the positive difference between the outstanding principal balance of the notes and the outstanding principal balance of the nondefaulted collateral. If a turbo amortisation event occurs, then all collections will be applied toward repayment of the Class B Notes until paid in full after servicing the senior fees, the interest due on the rated notes (if a Class C interest deferral event has not occurred), and the replenishment of the reserve fund. The Class C target amortisation amount (once the Class A and Class B Notes have been redeemed in full) is equal to the positive difference between the outstanding principal balance of the notes and the outstanding principal balance of the nondefaulted collateral. If a turbo amortisation event occurs, then all collections will be applied toward the payment of the Class C Notes principal until paid in full after the payment of the senior fees, the interest due on the Class C Notes, and the replenishment of the reserve fund.

-- The turbo amortisation event will occur when the cumulative default ratio is higher than or equal to 1% one year after the closing date, 2% two years after the closing date, 3% three years after the closing date, 4% four years after the closing date, and 5% five years after the closing date. Loans in arrears for more than 12 months will be considered as defaulted loans as per the transaction documentation.

-- DBRS Morningstar analysed the final portfolio, which was equal to EUR490 million as of 20 March 2023, using the European RMBS Insight Model to estimate the portfolio’s defaults and losses.

-- The main characteristics of the portfolio include (1) a 61.6% weighted-average current loan-to-value (WACLTV) and a 64.2% indexed WACLTV; (2) the top three geographical concentrations of Catalonia (27.6% of the portfolio by loan balance), Madrid (22.0%), and Andalusia (21.4%); (3) a WA loan seasoning of 9.1 years; (4) a WA remaining term of 23.7 years, with no loans having a remaining term longer than 30 years; and (5) no mortgage loans to be securitised in arrears for more than 90 days in the past and just a 13.7% of the portfolio consisting of mortgage loans that were restructured more than five years ago.

-- The loans are primarily floating-rate mortgages linked to 12-month Euribor (20.4%) or Índice de Referencia de Préstamos Hipotecarios (IRPH) (44.7%). Approximately 34.9% of the portfolio comprises fixed-rate loans with a compulsory switch to 12-month Euribor at the end of their fixed-rate period. The current WA interest rate of the portfolio is 3.0%. The notes are floating-rate liabilities indexed to three-month Euribor. In addition, three-month Euribor rate will be capped at 6.0% for the Class A Notes after the step-up date.

-- The loans in the portfolio are paying monthly instalments with a WA reset interval of six months while the notes will pay a quarterly coupon. Because of the different reference indices in the portfolio, there is some reset and basis risk in the transaction. Also, because the existence of fixed-rate loans and Class A and Class B Notes referenced to a floating rate (three-month Euribor), the transaction is exposed to negative carry during an increasing interest rate environment. Liquidity in the transaction, provided through the cash reserve and the possibility of using principal to pay interest on the rated notes, acts as a mitigating factor for interest rate risk and the basis risk. DBRS Morningstar stressed the interest rates as described in its “Interest Rate Stresses for European Structured Finance Transactions” methodology. DBRS Morningstar also stressed the spread between IRPH & Euribor and 12-month Euribor & three-month Euribor in its cash flow analysis.

-- The credit quality of the mortgages backing the notes and the servicer’s ability to perform its servicing responsibilities. DBRS Morningstar was provided with UCI’s historical mortgage performance data. Details of the portfolio default rate (PD), loss given default (LGD), and expected losses resulting from DBRS Morningstar’s credit analysis of the mortgage portfolio at AAA (sf), AA (high) (sf), and A (high) (sf) stress scenarios are detailed below in the sensitivity analysis section.

-- In accordance with the transaction documentation, the servicer can grant loan modifications without the management company’s consent within the range of permitted variations. Fixed-rate loans can be renegotiated to floating-rate loans and floating-rate loans can be renegotiated to fixed-rate loans up to a maximum of 5% of the initial balance of the portfolio. The margin on 12-month Euribor loans can be reduced to 0.75 basis points for loans linked to Euribor and the maturity of the loan can be extended to the final maturity date of the notes. DBRS Morningstar considered these permitted variations and factored them in its cash flow analysis.

-- The transaction’s account bank agreement and respective replacement trigger require BNP Paribas S.A. Sucursal en España, acting as fund account provider, to find (1) a replacement account bank or (2) an account bank guarantor upon the loss of an applicable rating of “A” on the account bank. DBRS Morningstar privately rates BNP Paribas S.A. Sucursal en España.

-- The transaction’s ability to withstand stressed cash flow assumptions and repay the noteholders according to the terms and conditions in the transaction documents. DBRS Morningstar analysed the transaction structure using Intex DealMaker. DBRS Morningstar considered additional sensitivity scenarios of 0% conditional repayment rate stress.

-- The transaction’s legal structure and its expected consistency with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology as well as the presence of the appropriate legal opinions that address the assignment of the assets to the Issuer

-- DBRS Morningstar’s sovereign rating on the Kingdom of Spain of “A” with a Stable trend as of the date of this press release

ESG CONSIDERATIONS
There were no Environmental/Social/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.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies applicable to the ratings are the “European RMBS Insight Methodology” (27 March 2023); https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology; and the “European RMBS Insight: Spanish Addendum” (1 March 2023); https://www.dbrsmorningstar.com/research/410420/european-rmbs-insight-spanish-addendum.

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/401817/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 those provided by UCI and its representatives. DBRS Morningstar was provided with loan-level data for the mortgage loans as of 20 March 2023 and historical performance data (delinquencies, defaults, recoveries, payment data, and loan level repossession data) covering the period from 2005 to 2022.

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

DBRS Morningstar was supplied with 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.

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.

Sensitivity Analysis: 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 PD of 18.8% and LGD of 39.3%, 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 PD of 16.6% and LGD of 35.7%, corresponding to the AA (high) (sf) rating scenario, was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C Notes, a PD of 12.2% and LGD of 30.1%, corresponding to the A (high) (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 AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

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

Class C 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 A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (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/cerepweb/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: Álvaro Astarloa, Assistant Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 23 March 2023

DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81
Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
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: Spanish Addendum (1 March 2023),
https://www.dbrsmorningstar.com/research/410420/european-rmbs-insight-spanish-addendum.
-- European RMBS Insight Methodology (27 March 2023) and European RMBS Insight model v 5.7.1.0
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022),
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022),
https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022),
https://www.dbrsmorningstar.com/research/402773/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.