DBRS Upgrades Ratings on Mespil 1 RMBS Designated Activity Company

DBRS Ratings Limited (DBRS) has today upgraded the ratings on the Class A2 Notes and Class A3 Notes (together, the Class A Notes) issued by Mespil 1 RMBS Designated Activity Company (Mespil 1) to AAA (sf) from AA (high) (sf).

The rating actions on the Class A Notes are based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of 31 August 2016.
-- Updated default, recovery and loss assumptions for the remaining collateral pool.
-- The on-going improvement of the Irish housing market and, in DBRS’s view, the increased sovereign credit strength of the Republic of Ireland.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.

Mespil 1 is a securitisation of Irish prime residential mortgages, originated and serviced by EBS d.a.c. and its wholly-owned subsidiary Haven Mortgages Limited. In September 2016, Mespil 1 was converted to a Designated Activity Company from a Limited Company under the Companies Act 2014.

As of August 2016, the 90+ delinquency ratio was 7.72%, down from 9.52% in August 2015. Over the same period, the total percentage of loans in arrears has fallen to 10.02%, from 11.87%.

DBRS upgraded the Republic of Ireland’s Long-Term Foreign and Local Currency Issuer Ratings to A (high) from “A” on 11 March 2016 (http://www.dbrs.com/research/291773/dbrs-upgrades-republic-of-ireland-to-a-high.html). Following the sovereign upgrade, DBRS now applies less sovereign stress in its analysis of Irish securitisation transactions. Consequently, DBRS has reduced the transaction’s two-year probability of default (PD) assumption to 0.76%, from 0.81%.

As of the September 2016 payment date, credit enhancement (in the form of subordination) to the Class A Notes was 35.46%, up from 26.00% at the time of DBRS’s initial rating. Credit enhancement to the Class A Notes consists of subordination of the Class Z Loan and a non-amortising Reserve Fund of EUR 10 million that is available to cover senior fees, interest and principal (via the principal deficiency ledger) on the Class A Notes. DBRS recognises that although both the Class A2 Notes and Class A3 Notes benefit from the same level of credit enhancement as they rank pro rata and pari passu in terms of deemed loss (debit of the principal deficiency ledgers), the sequential repayment structure of the transaction before a note event of default affords additional credit protection to Class A2, as detailed in the Risk Sensitivity overview section of this press release.

BNP Paribas, Dublin Branch acts as account bank for the transaction. The DBRS private rating of BNP Paribas, Dublin 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 euros unless otherwise noted.

The principal methodology applicable is the 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’s legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

Other methodologies and criteria 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 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.

The sources of information used for this rating include reports and loan level data provided by EBS d.a.c. and 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 this transaction took place on 26 November 2015, when DBRS upgraded the rating on the Class A Notes to AA (high) (sf) from AA (sf).

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):

-- The Base Case PD and LGD assumptions for the remaining collateral pool are 18.12% and 41.46%, respectively. At the AAA (sf) rating level, the corresponding PD is 37.62% and the LGD is 73.39%.

-- 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 on the Class A2 Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A2 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 on the Class A2 Notes would be expected to remain at AAA (sf).
Class A2 Notes 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 A3 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 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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

For further information on DBRS historic 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.

Lead Analyst: Andrew Lynch, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Senior Vice President
Initial Rating Date: 22 February 2012

DBRS Ratings Limited
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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

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.