DBRS Takes Rating Actions on SapphireOne Mortgages FCT 2016-1

DBRS Ratings Limited (DBRS) has today taken the following rating actions on the notes issued by SapphireOne Mortgages FCT 2016-1 (SapphireOne 2016-1):

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

Today’s rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

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

SapphireOne 2016-1 closed in July 2016 and is a securitisation of French debt consolidation residential mortgage loans originated and serviced by My Money Bank SA (previously GE Money Bank SCA). The transaction has a unique payment structure under which the balance of the mortgage loans on the transaction side refers to a constant instalment amortisation schedule set at the initial cut-off date. At the same time, the mortgage borrowers pay fixed instalments, which do not decrease and are recalculated on an annual basis by referring to the same constant instalment amortisation schedule. The market interest rate movements only will affect the floating-rate mortgage borrower instalment amounts at the scheduled annual resets.

PORTFOLIO PERFORMANCE AND ASSSUMPTIONS
The asset portfolio is performing within DBRS’s expectations. As of 30 April 2017, loans more than 90 days delinquent as a percentage of the outstanding collateral pool balance were at 1.11%, and loans more than 30 days delinquent were at 5.65%. At the same time, the outstanding default ratio was 2.83%. DBRS has maintained the base case PD and LGD assumptions for the remaining collateral pool at 9.79% and 3.24%, respectively. Nevertheless, DBRS notes the increasing trend in the portfolio’s delinquencies and defaults.

CREDIT ENHANCEMENT
The CE available to all the rated notes has increased as the transaction deleverages relatively fast amid high repayment and prepayment rates. The sources of CE to each note are the subordinated notes and the Non-Liquidity Reserve Fund. The Total Reserve Fund is currently at its non-amortising target amount of EUR 21.25 million. The redemption of the notes increases the amount of the Non-Liquidity Reserve Fund, contributing to the increase of the credit support in the transaction. As of the 26 May 2017 payment date, the CE available to Class A, Class B, Class C, Class D and Class E were 21.56%, 16.62%, 13.18%, 10.47% and 7.82%, respectively. The increased CE levels are the principal reason for the upgrades of the non-senior notes.

Société Générale, S.A. acts as Account Bank to the transaction. The Account Bank reference rating of AA (low), being one notch below the DBRS Long-Term Critical Obligations Rating (COR) of AA, complies with the Minimum Institution Rating, given the rating assigned to the most senior notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

BNP Paribas SA acts as swap counterparty to the transaction. The swap counterparty reference rating of AA, being one notch below the COR of AA (high), complies with the first rating threshold, given the rating assigned to the most senior 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 legal 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 the management company EuroTitrisation and the loan-by-loan data from European Data Warehouse 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 these ratings to be of satisfactory quality.

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

This is the first rating action since the Initial Rating was finalised.

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):

-- DBRS expected a base case PD and LGD for the remaining collateral pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- The base case PD and LGD assumptions for the remaining collateral pool are 9.79% and 3.24%, respectively. At the AAA (sf) rating level, the corresponding PD is 35.43% and the LGD is 25.47%. At the AA (high) (sf) rating level, the corresponding PD is 32.54% and the LGD is 18.77%. At the AA (sf) rating level, the corresponding PD is 29.42% and the LGD is 17.45%. At the A (high) (sf) rating level, the corresponding PD is 26.30% and the LGD is 14.95%. At the BBB (high) (sf) rating level, the corresponding PD is 22.43% and the LGD is 11.32%.

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

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

Class E Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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 and US regulations only.

Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 July 2016

DBRS Ratings Limited
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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.

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