DBRS Takes Rating Actions on Kingswood Mortgages 2015-1 PLC

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by Kingswood Mortgages 2015-1 PLC (Kingswood 2015-1):

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

The 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 the AA (sf) rating level.

Kingswood 2015-1, which closed in July 2015, is a securitisation of a portfolio of German residential mortgage loans originated by Paratus AMC GmbH (formerly GMAC-RFC Bank GmbH) and initially securitised into E-MAC DE 2009-1 B.V. L2 B.V., wholly owned by Macquarie Bank Limited, London Branch (Macquarie Bank London), acquired the portfolio in 2014 and sold it into Kingswood 2015-1. L2 B.V. acts as the Master Servicer of the portfolio and delegates the day-to-day servicing of the portfolio to the Sub-Servicer, Servicing Advisors Deutschland GmbH.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
The total arrears in the portfolio have increased since the last review in 2016. As of 31 March 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance remained around the similar level at 1.26% and loans more than 30 days delinquent increased to 4.62%. The cumulative default rate as a percentage of the portfolio balance at the transaction closing was 0.44% and the cumulative default recovery rate was 71.31%. DBRS has updated PD and LGD assumptions at the B (sf) rating level to 9.00% and 48.35% from 7.76% and 51.15%, respectively. The increased PD assumption reflects the increase in the loans in arrears while the decreased LGD assumption reflects the decrease in the portfolio’s weighted-average loan-to-value ratio as the portfolio deleverages.

CREDIT ENHANCEMENT
The portfolio is paying down quickly as the borrowers start to remortgage the loans as the prepayment penalty period ends. As of the end of March 2017, the loan portfolio pool factor was 73.5%. Following the portfolio deleveraging, the CEs to all rated notes have increased. As of the April 2017 payment date, the CEs to the Class A, B, C, D and E notes have increased to 42.43%, 28.96%, 23.77%, 20.02% and 15.74%, respectively. The increased CE more than offsets the increased PD assumption, which prompted today’s upgrades.

Citibank N.A., London Branch is the Account Bank to the transaction and its current DBRS private rating meets 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.

Macquarie Bank London is the swap counterparty to the transaction. The DBRS Equivalent Rating of Macquarie Bank London is above the First Rating Threshold, given the rating assigned to the Class A notes, as described in DBRS’s “Derivative 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 investor reports provided by Citibank N.A. Agency and Trust, 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 15 July 2016, when DBRS confirmed the ratings on Class A, B, C, D, and E.

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 33.59% and the LGD is 60.07%. At the AA (high) (sf) rating level, the corresponding PD is 30.76% and the LGD is 58.69%. At the AA (low) (sf) rating level, the corresponding PD is 26.21% and the LGD is 56.57%. At the A (low) (sf) rating level, the corresponding PD is 22.52% and the LGD is 54.30%. At the BB (high) (sf) rating level, the corresponding PD is 15.03% and the LGD is 51.03%.

-- 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 (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (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)

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

Class D risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (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 (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 E risk sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (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 (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (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: Christian Aufsatz, Managing Director
Initial Rating Date: 26 June 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
-- 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