DBRS Takes Rating Actions on Fastnet Securities 3 Limited and Fastnet Securities 10 Limited

DBRS Limited (DBRS) has today taken the following rating actions on the notes issued by Fastnet Securities 3 Limited (Fastnet 3) and Fastnet Securities 10 Limited (Fastnet 10):

Fastnet 3:
-- Class A1 Mortgage Backed Fixed Rate Notes (Class A1) confirmed at AAA (sf)
-- Class A2 Mortgage Backed Fixed Rate Notes (Class A2) upgraded to AA (sf) from A (high) (sf)

Fastnet 10:
-- Class A1 upgraded to AAA (sf) from AA (high) (sf)
-- Class A2 upgraded to AA (high) (sf) from AA (sf)
-- Class A3 upgraded to AA (sf) from A (high) (sf)

Today’s rating actions are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies and defaults,
-- Sovereign credit strength of the Republic of Ireland,
-- Probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool and
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at their relevant rating levels.

Fastnet 3 closed in December 2007 and Fastnet 10 closed in November 2014. Both transactions are securitisations of first-lien Irish residential mortgages originated and serviced by permanent tsb p.l.c. (PTSB; rated BB (low), Positive Trend/R-4, Stable Trend by DBRS).

PORTFOLIO PERFORMANCE
Both transactions are performing within DBRS’s expectations. As of 30 September 2016, for Fastnet 3, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance have decreased slightly to 11.51% from 12.01% a year ago. During the same period, loans more than 12 months delinquent have also decreased slightly to 9.56% from 9.95%. At the same time, for Fastnet 10, loans more than 90 days delinquent remained low at 1.41% and loans more than 12 months delinquent increased to 0.50% from 0.04%. There have been limited repossessions in Fastnet 3 and no repossessions in Fastnet 10 since DBRS’s last rating review. In addition, no losses have been realised in either transaction in the same time period. PTSB has been actively repurchasing loans out of the securitised pools (so far, 14.28% of the securitised pool for Fastnet 3 and 2.08% of the securitised pool for Fastnet 10).

SOVEREIGN UPGRADE
DBRS upgraded the Republic of Ireland’s Long-Term Sovereign Rating to A (high) from “A” on 11 March 2016 (please see the DBRS press release entitled, “DBRS Upgrades Republic of Ireland to A (high)”) and confirmed the rating on 2 September 2016. Following the sovereign upgrade, DBRS now applies less sovereign stress in the transaction analysis by reducing each transaction’s remaining collateral pools’ 2-year PD assumption to 1.81% from 1.86% for Fastnet 3 and to 1.38% from 1.42% for Fastnet 10.

PD AND LGD ASSUMPTIONS
Ireland’s residential house prices continue to recover. As of August 2016, the year-over-year prices have recovered by 8.61% outside Dublin and by 3.85% in Dublin, according to data from the Central Statistics Office. The improved houses prices reduce the loan-to-value ratios of the securitised loans and the expected loss severity of the defaulted mortgages.

DBRS received loan-by-loan forbearance information from the Servicer for both transactions and applied additional stresses to these loans in the credit analysis. The results of the credit analysis, which also reflect the improved Irish sovereign credit strength and house price increases, prompted updates to the base-case PD and LGD assumptions for the remaining pools of both transactions. For Fastnet 3, the base-case PD and LGD were updated to 23.16% and 42.19%, respectively. For Fastnet 10, the base-case PD and LGD were updated to 12.92% and 34.43%, respectively.

CREDIT ENHANCEMENT
The CE available to the rated notes in both transactions has increased as the transactions gradually repay. The sources of credit enhancement are provided through the subordination of the junior notes and the non-amortising reserve funds. As of the September 2016 payment date, the CE available to the Class A1 and A2 notes in Fastnet 3 increased to 92.65% and 43.67%, respectively. The CE available to the Class A1, A2 and A3 notes in Fastnet 10 increased to 68.90%, 46.67% and 30.00%, respectively.

BNP Paribas Securities Services, London Branch, is the Account Bank to Fastnet 3 and Deutsche Bank AG, London Branch, is the Account Bank to Fastnet 10. Both entities have DBRS private ratings that meet the Minimum Institution Rating criteria as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the ratings assigned to the respective Class A1 notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Master European Structured Finance Surveillance Methodology.

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 legal documents was not conducted as the documents have remained unchanged since the most recent rating action

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

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

For a more detailed discussion of the 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 the monthly investor reports and the loan by loan restructuring information from permanent tsb p.l.c., and the monthly loan by loan data from European DataWarehouse GmbH.

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 to be 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 Fastnet 3 took place on 6 November 2015, when DBRS confirmed Class A1 notes at AAA (sf) and upgraded Class A2 notes to A (high) (sf). The last rating action on Fastnet 10 took place on 27 November 2015, when DBRS confirmed the Class A1, A2, and A3 notes ratings.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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):

-- For Fastnet 3, the base case PD and LGD assumptions for the remaining collateral pool are 23.16% and 42.19%, respectively. At the AAA (sf) rating level, the corresponding PD is 48.85% and the LGD is 73.74%. At the AA (sf) rating level, the corresponding PD is 43.20% and the LGD is 65.15%.

-- For Fastnet 10, the base case PD and LGD assumptions for the remaining collateral pool are 12.92% and 34.43%, respectively. At the AAA (sf) rating level, the corresponding PD is 40.47% and the LGD is 69.59%. At the AA (high) (sf) rating level, the corresponding PD is 37.50% and the LGD is 61.65%. At the AA (sf) rating level, the corresponding PD is 34.27% and the LGD is 59.96%.

-- 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, for Fastnet 3, if the LGD increases by 50%, the rating on the Class A1 notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A1 notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A1 notes would be expected to be at AAA (sf).

Fastnet 3
Class A1 risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (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 AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class A2 risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (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)

Fastnet 10
Class A1 risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (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 AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (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 A (high) (sf)

Class A2 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)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)

Class A3 risk sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of A (high) (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 (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

For further information on DBRS historical default rates published by the European Securities and Markets Authority (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.

Fastnet 3
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Senior Vice President
Initial Rating Date: 7 November 2014

Fastnet 10
Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Senior Vice President
Initial Rating Date: 27 November 2014

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

-- Unified Interest Rate Model for European Securitizations
-- 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

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