DBRS Confirms Ratings on Celeste Mortgage Funding 2015-1 PLC

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following bonds issued by Celeste Mortgage Funding 2015-1 PLC (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (sf)

The confirmation of the ratings on the Class A to Class F Notes (together, the Rated Notes) is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of February 2016.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at their current rating levels.

Celeste Mortgage Funding 2015-1 PLC is a securitisation of U.K. Buy-to-Let and non-conforming residential mortgages originated by Basinghall Finance Limited (BFL) and GMAC-RFC Limited. The portfolio is currently being serviced by Bluestone Mortgages Ltd (who acquired BFL in December 2014) and Homeloan Management Limited.

As of February 2016, two- to three-month arrears were at 1.21%, and the 90+ delinquency ratio was at 0.84%. Current realised losses are low at £34,841.

As of February 2016, credit enhancement to the Class A Notes was 40.58%, up from 37.15% at the DBRS initial rating. Credit enhancement to the Class B Notes was 28.17%, up from 25.65% at the DBRS initial rating. Credit enhancement to the Class C Notes was 18.03%, up from 16.25% at the DBRS initial rating. Credit enhancement to the Class D Notes was 13.50%, up from 12.05% at the DBRS initial rating. Credit enhancement to the Class E Notes was 9.61%, up from 8.45% at the DBRS initial rating. Credit enhancement to the Class F Notes was 7.99%, up from 6.95% at the DBRS initial rating. Credit enhancement to each class of Rated Notes consists of subordination of junior classes and the Credit Reserve portion of the Reserve Fund.

The transaction benefits from a Reserve Fund that is split into two components, the Credit Reserve and the Liquidity Reserve. The Credit Reserve forms part of available revenue funds and is available to reduce any outstanding PDL balance on the Rated Notes, while the Liquidity Reserve covers senior fees and interest shortfall on the Rated Notes. The Reserve Fund is currently funded to the level of approximately £5.02 million and is allowed to increase up to a target level of £5.37 million utilising excess spread.

Citibank N.A., London Branch acts as account bank for this transaction. The DBRS private rating of Citibank N.A., London Branch complies with the Minimum Institution Rating, given the rating assigned to the Class A Notes, as described in DBRS’s Legal Criteria for European Structured Finance Transactions methodology.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is Master European Structured Finance Surveillance Methodology, which can be found on www.dbrs.com at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

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

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. A review of the transaction’s legal documents was not conducted, as the documents have remained unchanged since the most recent rating action.

The sources of information used for this rating include reports and loan level data provided by Bluestone Mortgages Ltd.

DBRS does not rely upon third-party due diligence in order to conduct its analysis. DBRS was not supplied with third-party assessments; however, this did not impact the rating analysis.

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 27 March 2015, when DBRS finalised its provisional ratings on the Rated Notes. The lead responsibilities for this transaction have been transferred to Andrew Lynch.

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

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with 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 11.55% and 27.26%, respectively. At the AAA (sf) rating level, the corresponding PD is 39.25% and the LGD is 50.65%.
-- 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 A Notes would be expected to fall to AA (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for 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 rating of the Class A Notes would be expected to fall to AA (low) (sf).

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

Class C 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 (high) (sf).
-- 50% increase in PD, expected rating of BBB (low) (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (low) (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 (high) (sf).

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

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

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of B (sf).
-- 50% increase in LGD, expected rating of B (sf).
-- 25% increase in PD, expected rating of B (sf).
-- 50% increase in PD, expected rating below B (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of B (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of B (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating below B (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating below B (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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: Asim Zaman
Initial Rating Date: 11 March 2015
Initial Rating Committee Chair: Quincy Tang

Lead Surveillance Analyst: Andrew Lynch
Rating Committee Chair: Diana Turner

DBRS Ratings Limited
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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 (September 2015)
-- Master European Structured Finance Surveillance Methodology (December 2015)
-- Operational Risk Assessment for European Structured Finance Servicers (December 2015)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (January 2016)
-- Unified Interest Rate Model for European Securitisations (October 2015)

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.