DBRS Confirms the Ratings on Phoenix Funding 5 Limited

DBRS Ratings Limited (“DBRS”) has today reviewed Phoenix Funding 5 Limited (the “Issuer”) and has confirmed the following ratings:
• Class A1 confirmed at ‘A’ (high) (sf)
• Class A2 confirmed at ‘A’ (high) (sf)
• Class A3 confirmed at ‘A’ (high) (sf)

The confirmation of the ratings of the Class A1, A2 and A3 Notes is based upon the following analytical considerations, as described more fully below:

• Portfolio performance, in terms of delinquencies and defaults, as of the July 2014 payment date.
• Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
• Incorporation of a sovereign related stress component in the rating analysis to address the impact of macroeconomic variables on collateral performance given the long-term foreign and local currency rating of ‘A’ (low) for the Republic of Ireland.
• Current available credit enhancement for the Class A1, A2 and A3 Notes to cover the expected losses at the ‘A’ (high) (sf) rating level.

Phoenix Funding 5 Limited is a static securitisation of first ranking Irish residential mortgage loans funded by the issuance of three classes of mortgage backed securities. The mortgage loans were originated and are serviced by KBC Bank Ireland Plc, a subsidiary of KBC Bank NV.

The portfolio is well-seasoned (just under 6 years) and 49% of the loans in the current pool have been originated between 2006 and 2008. Additionally, 43% of the portfolio is geographically concentrated in the Dublin area.

The ratio of the cumulative mortgages repossessed to the original portfolio balance reached the level of 0.25% in July 2014 and it is still relatively low. The 90+ delinquency ratio increased to 5.12% in July 2014, up from 2.45% in July 2013.

Credit enhancement for the rated Notes is provided by subordination of Class Z Loan and a non-amortising Reserve Fund of EUR 15.6 million (equal to 2.74% of the current balance of the rated Notes). The Reserve Fund is available to the Issuer to meet any interest shortfalls on the rated Notes and for recouping losses debited to the Principal Deficiency Ledgers for these Notes. The rated Notes are also supported by a Collection Reserve Fund which is available to cover any revenue deficiency to pay interest on the rated Notes should the Reserve Fund and the principal receipts not be enough. The Collection Reserve Fund is maintained at the greater of 0.75% of the balance of the rated Notes plus the Class Z Loan amount at issuance, and the aggregate amount of interest payable for 3 months on the Notes assuming the 1-month Euribor rate for the current period.

KBC Bank NV, Dublin branch is the Account Bank for the transaction. The private rating of KBC Bank NV, Dublin branch is above the Minimum Institution Rating given the highest rating assigned to the rated Notes as described in the DBRS Legal Criteria for European Structured Finance Transactions.
Notes:
All figures are in Euro unless otherwise noted.
The principal methodology applicable is Master European Structured Finance Surveillance Methodology. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include monthly investor reports provided by KBC Bank Ireland Plc and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 5 September 2013, when DBRS confirmed the ratings of ‘A’ (high) (sf) to the Class A1, A2 and A3 Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
• DBRS expected a lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool 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 of the current pool of mortgages for the Issuer are 15.43% and 43.04%, respectively. At the ‘A’ (high) (sf) rating level, the corresponding PD is 36.54% and the LGD is 62.53%.
• The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A1 Notes would be expected to fall to BBB (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A1 Notes would be expected to fall to BBB (low) (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating of the Class A1 Notes would be expected to drop to BB (low) (sf).

Class A1 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of BBB (high) (sf)
• 50% increase in LGD, expected rating of BBB (sf)
• 25% increase in PD, expected rating of BBB (sf)
• 50% increase in PD, expected rating of BBB (low) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

Class A2 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of BBB (high) (sf)
• 50% increase in LGD, expected rating of BBB (sf)
• 25% increase in PD, expected rating of BBB (sf)
• 50% increase in PD, expected rating of BBB (low) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

Class A3 Notes Risk Sensitivity:
• 25% increase in LGD, expected rating of BBB (high) (sf)
• 50% increase in LGD, expected rating of BBB (sf)
• 25% increase in PD, expected rating of BBB (sf)
• 50% increase in PD, expected rating of BBB (low) (sf)
• 25% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
• 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
• 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Alastair Bigley
Initial Rating Date: 6 June 2012
Initial Rating Committee Chair: Erin Stafford

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
1 Minster Court, 10th Floor
Mincing Lane
London
EC3R 7AA
United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Master European Structured Finance Surveillance Methodology
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations