DBRS Upgrades Candide Financing 2007 NHG B.V. Class A Notes

DBRS Ratings Limited (DBRS) has today upgraded the Class A Notes issued by Candide Financing 2007 NHG B.V. (Candide) to AA (sf) from A (high) (sf).

Today’s rating action follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies, defaults and losses.
-- Probability of default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the Class A Notes to cover the expected losses at the AA (sf) rating level.

Candide 2007 closed in December 2007 and is a securitisation of Dutch residential mortgages originated by Bank of Scotland Plc, Amsterdam Branch (BoS Amsterdam) with the benefit of an NHG Guarantee. DBRS assigned the A (high) (sf) rating to the Class A Notes in June 2011.

PORTFOLIO PERFORMANCE
From December 2015 to December 2016, the loans more than 90 days delinquent as a percentage of the outstanding portfolio collateral balance has declined to 0.95% from 1.27%. Cumulative losses during the same period has increased slightly to 0.22% from 0.21%. At the same time, DBRS notes that the Originator is actively repurchasing loans out of the portfolio. The repurchases have contributed to the majority of repayment activities in the transaction since the transaction’s closing.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the remaining pool and maintained the PD assumption on the remaining collateral pool. In this review, DBRS removed the haircut applied to the NHG Guarantee payout ratio at the higher rating stress level. Consequently, at the AA (sf) rating level, the LGD assumption has been reduced to 15.67% from 27.17%.

CREDIT ENHANCEMENT
The CE available to the rated notes has increased as the transaction continues to repay. The source of CE is provided through the non-amortising Reserve Fund funded by the issuance of Class B Notes at closing and is currently at its target amount. As of the December 2016 payment date, the CE available to the Class A Notes increased to 7.65% from 5.31% 12 months prior.

The improved LGD assumption and the increased CE prompted today’s Class A Notes rating upgrade.

BoS Amsterdam is the Swap Counterparty to the transaction and has a DBRS private rating that meets the minimum required rating as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

N.V. Bank Nederlandse Gemeenten is the Account Bank to the transaction and has a DBRS private rating that meets the Minimum Institution Rating criteria as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A Notes.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating 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 data and information used for this rating include the quarterly investor report from Intertrust Management B.V. and quarterly loan-by-loan data from European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

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

The last rating action on this transaction took place on 11 February 2016, when DBRS confirmed the Class A Notes at A (high) (sf).

The lead analyst responsibilities for this transaction have been transferred to Kevin Ma.

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

To assess the impact of 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):

-- The Base Case PD and LGD assumptions for the remaining collateral pool are 1.42% and 12.06%, respectively. At the AA (sf) rating level, the corresponding PD is 13.43% and the LGD is 15.67%.

-- 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 A Notes would be expected to be at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and the LGD increase by 50%, the rating on the Class A Notes would be expected to be at AA (sf).

Class A Notes 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 AA (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 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 AA (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.

Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 21 June 2011

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY
United Kingdom
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.

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

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.