DBRS Finalises Provisional Ratings on Together Asset Backed Securitisation 1 Plc

DBRS Ratings Limited (DBRS) finalised its provisional ratings on the notes issued by Together Asset Backed Securitisation 1 Plc (TABS or the Issuer) as follows:

-- Class A notes rated AAA (sf)
-- Class B notes rated AA (sf)
-- Class C notes rated A (high) (sf)
-- Class D notes rated BBB (sf)
-- Class E notes rated BB (high) (sf)

The Class Z and Class R notes are not rated.

The Issuer is a public securitisation issuance from Together Financial Services Limited. The portfolio of mortgage loans comprises first- and second-lien mortgage loans, both owner-occupied and buy-to-let (BTL) backed by residential properties located in the United Kingdom. The loans have been originated by Blemain Finance Limited, Together Personal Finance Limited and Together Commercial Finance Limited, each of which belong to the Together Group of Companies. A portion of the assets are currently warehoused in Charles Street Conduit Asset Backed Securitisation 1 Limited, which is rated AA (sf) by DBRS.

Each of the originators will be servicers of the loans they have originated. Capita Mortgage Services Limited is in place as the standby servicer.

The portfolio consists of loans originated over the last three years and has a weighted-average seasoning of 15.2 months. The aggregate outstanding balance of the portfolio stands at GBP 275 million, with a weighted-average current loan-to-value of 57.1%. The weighted-average original loan-to-value is 57.7%.

The portfolio consists of almost an equal proportion of BTL (47.2%) and owner-occupied (52.8%) residential mortgage loans. Across these product types the loans are either first- or second-charge loans (the latter are approximately 60.2% of the mortgage portfolio – percentages are by outstanding balance insofar as they refer to portfolio proportions) and monthly repayments can be on an interest-only basis (approximately 47.9% of the portfolio). Of the portfolio, 72.4% is either for the purpose of debt consolidation or withdrawal of the borrower’s equity in the mortgaged property. About 13.4% of the loans were granted to borrowers with an adverse credit history at the time of origination. Finally, 62.1% of the loans in the portfolio were granted to borrowers who are self-employed. Some of these loans and borrower features overlap for a proportion of loans, resulting in multiple layers of risk. The key mitigants to such risk layering are the relatively low loan-to-value ratio at origination, the relatively better historical performance of these product types in comparison to other seasoned non-conforming portfolios reviewed by DBRS and the servicing policies and capabilities of the originators.

DBRS expects some of these recent originations to perform better than as suggested by the performance history because of tighter affordability tests that consider repayment on a capital plus interest basis for owner-occupied interest-only loans (14.5% of the provisional portfolio). Since the beginning of the year, the affordability tests for BTL loans with less than a five-year teaser period considers higher interest rate stresses.

The credit enhancement to the senior notes is provided by subordination of the junior notes and an amortising reserve fund that will be 2% of the aggregate closing balance of the Class A to Class E notes. The Class A notes have a credit enhancement of 21%, with the Class B notes having 17%, the Class C notes at 13%, the Class D notes at 9% and the Class E notes at 7%. Besides the reserve fund, the principal receipts from the mortgage portfolio will be available to support liquidity on the senior fees and interest on the notes. Post the optional redemption date, the available revenue funds after replenishment of the reserve fund to the required level can be used to turbo amortise the notes sequentially.

The mortgage assets pay a variable rate of interest set by the lenders and, in comparison, the interest payable on the notes is linked to three-month GBP LIBOR. This gives rise to basis risk, which is not hedged in the transaction. DBRS has stressed the interest receipts from the mortgage loans in the cash flow analysis to account for potential reduction in interest rates payable on the mortgage loans. DBRS also tested the cash flows from the mortgage loans under a high prepayment scenario of 20%, which simulates further compression of interest receipts from the mortgage loans.

The account bank in the transaction is Elavon Financial Services DAC, UK Branch, which is privately rated by DBRS. This counterparty is appropriately rated to mitigate the counterparty risk to the Issuer in line with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

The ratings on the notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date. DBRS based the ratings primarily on the following analytical considerations:

-- The transaction capital structure, form and sufficiency of available credit enhancement and liquidity provisions.
-- The credit quality of the mortgage loan portfolio and the ability of the servicers to perform collection activities. DBRS calculated portfolio default rates (PDRs), loss given default (LGD) and expected loss outputs on the mortgage loan portfolio.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes according to the terms of the transaction documents. The transaction cash flows were modelled using PDRs and LGD outputs of the European RMBS Insight Model. Transaction cash flows were modelled using INTEX DealMaker.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents.
-- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in British pounds sterling unless otherwise noted.

The principal methodologies applicable to the rating are: “European RMBS Insight Methodology” and “European RMBS Insight: U.K. Addendum”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 Together Group of Companies, Lloyds Bank Commercial Banking and investor reports for other U.K. RMBS transactions.

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.

These ratings concern a newly issued financial instrument. This is the first rating action since the Initial Rating Date.

The last rating action on this transaction took place on 11 September 2017, when DBRS assigned provisional ratings on the expected notes’ issuance under the transaction.

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 additional stresses assume a 25% and 50% increase in both the PDRs and LGD assumptions for each series of notes:

The following scenarios constitute the parameters used to determining the Base Case:

-- In respect of the Class A Notes, the PDR and LGD at the AAA (sf) stress scenario of 31.63% and 66.02%, respectively.
-- In respect of the Class B Notes, the PD and LGD at the AA (sf) stress scenario of 28.53% and 61.95%, respectively.
-- In respect of the Class C Notes, the PD and LGD at the A (high) (sf) stress scenario of 25.04% and 56.12%, respectively.
-- In respect of the Class D Notes, the PD and LGD at the BBB (sf) stress scenario of 18.65% and 42.54%, respectively.
-- In respect of the Class E Notes, the PD and LGD at the BB (high) (sf) stress scenario of 13.54% and 33.99%, respectively.

DBRS concludes the following impact on the Class A notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to AA (low) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).

DBRS concludes the following impact on the Class B notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to A (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (high) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf).

DBRS concludes the following impact on the Class C notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BBB (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to A (low) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).

DBRS concludes the following impact on the Class D notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BBB (low) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (sf).

DBRS concludes the following impact on the Class E notes:
-- 25% increase of the PD, ceteris paribus, would lead to a downgrade to BB (sf).
-- 50% increase of the PD, ceteris paribus, would lead to a downgrade to BB (low) (sf).
-- 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (high) (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus, would lead to a downgrade to B (high) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to BB (low) (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus, would lead to a downgrade to B (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: Kali Sirugudi, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 11 September 2017

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

-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Unified Interest Rate Model for European Securitisations
-- European RMBS Insight Methodology
-- European RMBS Insight: U.K. Addendum

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