DBRS Takes Rating Actions on the Notes Issued by Dilosk RMBS No. 1 DAC

DBRS Ratings Limited (DBRS) has today taken rating actions on the notes issued by Dilosk RMBS No. 1 DAC (Dilosk 1) as follows:

-- Class A confirmed at AAA (sf)
-- Class B upgraded to AA (high) (sf) from AA (sf)
-- Class C upgraded to A (high) (sf) from A (sf)
-- Class D upgraded to BBB (high) (sf) from BBB (sf)

Ratings on the Class A and B notes address the timely payment of interest and the ultimate payment of principal of the notes by the legal final maturity date. Ratings on the Class C and D notes address the ultimate payment of interest and principal of the notes by the legal final maturity date.

Today’s rating actions follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance in terms of delinquencies, defaults and losses.
-- Portfolio default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the remaining collateral pool.
-- The credit enhancement (CE) available to the rated notes to cover the expected losses at each class of the notes’ relevant rating level.

Dilosk 1 closed in May 2015 and is a securitisation of the first-ranking Irish residential mortgages originated by ICS Building Society, which was previously part of the Bank of Ireland Group. Dilosk DAC acquired the mortgage portfolio, the ICS brand and the mortgage distribution platform from the Bank of Ireland in September 2014. The servicing of the portfolio is delegated to Capita Asset Services and Homeloan Management Limited is the backup servicer on the transaction.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The transaction’s collateral portfolio is performing well and within DBRS’s expectations. As of end of April 2017, there was one loan or 0.04% of the outstanding balance in more than 90 days’ arrears and there were no losses realised on the collateral portfolio since the transaction’s closing. DBRS received the loan-by-loan modification information. There was a limited number of loans that underwent modification or forbearance and DBRS applied additional stresses on those loans in its credit analysis. The base case PD and LGD assumptions for the remaining outstanding collateral portfolio are maintained at 1.12% and 2.36%, respectively, in this rating review.

CREDIT ENHANCEMENT
The CE available to the notes continues to increase as the transaction deleverages. As of the 22 May 2017 payment date, the available CE increased to 29.91% for the Class A notes, to 13.99% for the Class B notes, to 9.99% for the Class C notes and to 7.35% for the Class D notes. The CE is provided through the subordinated notes and the General Reserve Fund, which is currently at its target level.

As the ratings on the Class C and D notes address the ultimate payment of interest and principal on or before the legal final maturity date, DBRS considered additional factors for the rating decisions. These include but are not limited to the portfolio performance, the notes’ seniority in the structure, and the likelihood and the timing of any interest deferrals and their subsequent repayments. After incorporating these factors into the analysis, the ratings assigned to the Class C and D notes materially deviate from the higher ratings implied by the model.

BNP Paribas, Dublin Branch (BNP Dublin) is the Account Bank in this transaction. BNP Dublin’s private rating meets the Minimum Institution Rating criteria given the AAA (sf) 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 to the ratings 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 these ratings include the monthly investor reports from Deutsche Bank AG, London Branch, the loan-by-loan modification information from Dilosk DAC, and the 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 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 26 May 2016, when DBRS confirmed the Class A, B, C, and D notes at AAA (sf), AA (sf), A (sf) and BBB (sf), respectively.

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):

-- At the AAA (sf) rating level, the corresponding PD is 17.86% and the LGD is 40.49%. At the AA (high) (sf) rating level, the corresponding PD is 14.51% and the LGD is 28.27%. At the A (high) (sf) rating level, the corresponding PD is 8.51% and the LGD is 21.47%. At the BBB (high) (sf) rating level, the corresponding PD is 5.64% and the LGD is 15.00%.

-- 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 AAA (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 AAA (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 AA (high) (sf).

Class A 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 AA (high) (sf)

Class B 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 (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 (high) (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 (high) (sf)

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

Class D risk sensitivity:
-- 25% increase in LGD, expected rating of BBB(high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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: 12 May 2015

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

-- 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

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