DBRS Morningstar Confirms Credit Ratings on Notes Issued by Two Tulip Mortgage Funding Transactions

DBRS Ratings GmbH (DBRS Morningstar) confirmed its credit ratings on the bonds issued by Tulip Mortgage Funding 2019-1 B.V. (Tulip 2019) and Tulip Mortgage Funding 2020-1 B.V. (Tulip 2020) (together, the Issuers) as follows:

Tulip 2019
-- Class A notes at AAA (sf)
-- Class B notes at AA (high) (sf)
-- Class C notes at AA (sf)

Tulip 2020
-- Class A notes at AAA (sf)
-- Class B notes at AA (high) (sf)
-- Class C notes at AA (low) (sf)

The credit ratings on the Class A notes in both transactions address the timely payment of interest and the ultimate payment of principal by the legal final maturity date in October 2056 (Tulip 2019) and in January 2058 (Tulip 2020). The credit ratings on the Class B and Class C notes address the ultimate payment of interest and principal by the respective legal final maturity dates.

The confirmations follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performances, in terms of delinquencies, defaults, and losses as of the October 2023 payment date;
-- Portfolio default rate (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables, and
-- Current available credit enhancements to the rated notes to cover the expected losses at their respective credit rating levels.

The Issuers are securitisations of Dutch first-lien residential mortgage loans originated and serviced by Tulpenhuis 1 B.V. and collateralised by a portfolio of residential, owner-occupied properties in the Netherlands.

PORTFOLIO PERFORMANCE
As of the October 2023 payment date, loans two to three months in arrears represented 0.1% of the outstanding portfolio balance in Tulip 2019 and 0.0% in Tulip 2020, compared with 0.0% in both transactions since the last annual review in November 2022. The 90+-day delinquency ratios and the cumulative loss ratios also remained at 0.0% in both transactions in the same period.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pools of receivables and updated the base-case PD and LGD assumptions of both transactions as follows:

Tulip 2019: 1.4% PD and 10.1% LGD, up from 1.3% and 10.0%, respectively, at closing.
Tulip 2020: 1.6% PD and 10.0% LGD, compared with 1.7% and 10.0%, respectively, at closing.

CREDIT ENHANCEMENT
Credit enhancements to the rated notes are provided by the subordination of junior notes and reserve funds in both transactions.

Tulip 2019
As of the October 2023 payment date, credit enhancement to the Class A notes was 13.5%, up from 13.1% in October 2022. Credit enhancement to the Class B notes was 10.3%, up from 10.0% in the same period, and the credit enhancement to the Class C notes was 6.7%, up from 6.6%.

Tulip 2020
As of the October 2023 payment date, credit enhancement to the Class A notes was 10.9%, up from 10.8% in October 2022. Credit enhancement to the Class B notes was 7.7%, unchanged from the same period, and the credit enhancement to the Class C notes was 5.3%, down from 5.4%.

The transactions benefit from amortising reserve funds, which are available to cover senior fees and interest shortfalls on the rated notes. As of October 2023, the reserve fund was EUR 6.2 million for Tulip 2019, at its floor of 90% of its initial amount of EUR 6.9 million. As of October 2023, the reserve fund was at its target level of EUR 3.2 million for Tulip 2020, floored at 80% of its initial amount of EUR 3.6 million.

ABN AMRO Bank N.V. (ABN AMRO) acts as the account bank for both Issuers. Based on the DBRS Morningstar account bank reference rating for ABN AMRO of AA (low)—which is one notch below the DBRS Morningstar Long-Term Critical Obligations Rating (COR) of AA—the downgrade provisions outlined in the transactions’ documents, and other mitigating factors inherent in the transactions’ structures, DBRS Morningstar considers the risks arising from the exposure to the account bank to be consistent with the credit ratings assigned to the notes in both transactions, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA acts as the swap counterparty to the Issuers. BNP Paribas SA’s DBRS Morningstar Long-Term COR of AA (high) is above the first credit rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the Class A, Class B, and Class C notes in both transactions address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings on the Class A, Class B, and Class C notes in both transactions also address the credit risk associated with the increased rate of interest applicable to the Class A, Class B, and Class C notes in both transactions if the Class A, Class B, and Class C notes in both transactions are not redeemed on the Optional Redemption Date in accordance with the applicable transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-credit ratings.

DBRS Morningstar analysed the transactions’ structures in Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is: Master European Structured Finance Surveillance Methodology (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in these transactions are listed at the end of this press release.

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

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590/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 credit ratings include investor reports provided by Vistra Capital Markets (Netherlands) N.V., and loan-level data provided by the European DataWarehouse GmbH.

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

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments for both transactions. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purpose of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on both transactions took place on 11 November 2022, when DBRS Morningstar upgraded and confirmed the credit ratings of the rated notes in both transactions as follows:

Tulip 2019
-- Class A notes confirmed at AAA (sf)
-- Class B notes upgraded to AA (high) (sf) from AA (sf)
-- Class C notes upgraded to AA (sf) from A (sf)

Tulip 2020
-- Class A notes confirmed at AAA (sf)
-- Class B notes upgraded to AA (high) (sf) from AA (low) (sf)
-- Class C notes upgraded to AA (low) (sf) from A (low) (sf)

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transactions’ parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- DBRS Morningstar expected a lifetime base-case PD and LGD of the pools based on a review of the current assets. Adverse changes to asset performance may cause stresses to base-case assumptions and therefore have a negative effect on credit ratings.
-- The base-case PD and LGD assumptions for the collateral pools are:
(1) Tulip 2019: 1.4% PD and 10.1% LGD
(2) Tulip 2020: 1.6% PD and 10.0% LGD
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base-case assumption. For example, in Tulip 2019, if the LGD increases by 50%, the credit rating on the Class A notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the credit rating on the Class A notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class A notes would still be expected to remain at AAA (sf).

Tulip 2019
Class A Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)

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

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

Tulip 2020
Class A Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AAA (sf)
-- 50% increase in PD, expected credit rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of AA (high) (sf)

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

Class C Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 50% increase in PD, expected credit rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit 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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Dates:
Tulip 2019: 25 October 2019
Tulip 2020: 26 October 2020

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 credit rating methodologies used in the analysis of these transactions can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-credit ratings
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023), https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers
-- European RMBS Insight Methodology (27 March 2023) and European Asset RMBS Insight Model v 6.0.1.0,
https://www.dbrsmorningstar.com/research/411634/european-rmbs-insight-methodology
-- European RMBS Insight: Dutch Addendum (24 April 2023),
https://www.dbrsmorningstar.com/research/413034/european-rmbs-insight-dutch-addendum
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions

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 these credits or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.