DBRS Takes Rating Actions on Three Fastnet Transactions

DBRS Ratings Limited (DBRS) took rating actions on three Irish residential mortgage-backed securities transactions: Fastnet Securities 3 Limited (Fastnet 3), Fastnet Securities 10 Limited (Fastnet 10), and Fastnet Securities 12 Designated Activity Company (Fastnet 12). The ratings are as follows:

FASTNET 3
-- Class A1 confirmed at AAA (sf)
-- Class A2 upgraded to AAA (sf) from AA (sf)

FASTNET 10
-- Class A1 confirmed at AAA (sf)
-- Class A2 confirmed at AA (high) (sf)
-- Class A3 confirmed at AA (sf)

FASTNET 12
-- 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 (high) (sf)

Today’s rating actions follow an annual review of the transactions 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) rate and expected loss assumptions for the remaining collateral pool.
-- Current credit enhancement (CE) available to the notes to cover the expected losses at their respective rating levels.

The originator and the servicer in all three transactions is permanent tsb plc (PTSB, rated BB/R-4 by DBRS). Fastnet 3 closed in December 2007, Fastnet 10 closed in November 2010 and Fastnet 12 closed in November 2016. All transactions are backed by portfolios of Irish first-lien residential mortgages.

-- FASTNET 3
The portfolio performance has slightly improved with loans more than 90 days delinquent as a percentage of the outstanding portfolio balance decreased to 10.95% as of 31 August 2017 from 11.51% at the last rating review. Cumulative repossessions as a percentage of the mortgage portfolio balance on the transaction closing date increased to 1.16% from 0.87%, while cumulative realised losses remained at 0.01%.

Ireland’s house prices continue to recover across the country. As of July 2017, house prices have increased by 12.71% inside Dublin and by 11.72% outside Dublin year-over-year. The improvement in the house prices has reduced the loan-to-value (LTV) ratios and expected loss severities of the outstanding mortgages. DBRS has updated the base case PD and LGD assumptions on the remaining portfolio to 21.78% and 39.48% from 23.16% and 42.19%, respectively.

As the transaction continues to deleverage, CE to the Class A1 and A2 notes has increased to 98.42% and 46.36%, respectively, as of the September 2017 payment date. The increased CE and the updated portfolio assumptions prompted Class A2’s rating upgrade.

-- FASTNET 10
DBRS noted an increase in the arrears in Fastnet 10 portfolio. The portfolio performance, however, is still within DBRS’s expectations. As of 31 August 2017, the loans more than 90 days in arrears were 2.25%, an increase from 1.44% at the last rating review, and the loans more than 12 months in arrears also increased to 0.75% from 0.50%. There were no loan repossessions nor losses. DBRS also noted the property valuation amounts reported by the servicer on a portion of loans in the portfolio were adjusted mostly downwards since the last rating review. As a result, DBRS has updated the base case PD and LGD assumptions on the remaining portfolio to 13.60% and 39.67% from 12.92% and 34.43%, respectively.

The CE available to the Class A1, A2, and A3 notes has increased to 74.05%%, 50.78% and 33.32%, respectively, as the transaction deleveraging continues. The increase in CE more than offset the increase in PD and LGD assumptions. Consequently, DBRS confirmed the Class A1, A2, and A3 notes’ ratings.

-- FASTNET 12
The transaction closed 12 months ago and the performance is evolving and within DBRS’s expectations. As of 31 August 2017, the loans more than 90 days in arrears were low at 0.11%, and there were no loan repossessions nor losses. DBRS has maintained the base case PD and LGD assumptions on the remaining portfolio at 6.99% and 22.21%, respectively.

The transaction’s portfolio is static and amortises from the transaction closing. The CE available to the Class A, B and C notes, as a result, has increased to 22.44%, 16.50%, and 12.45%, respectively. The increase in CE prompted Class B and C notes’ upgrades.

PTSB started offering a cohort of buy-to-let borrowers the opportunities to surrender their properties securing the loans in arrears in exchange for debt write-offs in September. A small number of such borrowers in Fastnet transactions are eligible for this offer. DBRS conducted a detailed analysis on the impact of this offer on the Fastnet transactions and concluded there is no immediate impact. The analysis is detailed in the DBRS commentary entitled “No Impact on Fastnet Transactions from Permanent TSB’s Voluntary Surrender Offer” available at the link in the top right corner.

BNP Paribas Securities Services, London Branch is the Account Bank in Fastnet 3. Deutsche Bank AG, London Branch is the Account Bank is Fastnet 10. Elavon Financial Services DAC, UK Branch is the Account Bank in Fastnet 12. All three entities’ private reference ratings comply with the Account Bank Minimum Institution Rating criteria, given the ratings of the senior 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 transactions in accordance with the principal methodology.

A review of the respective transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating actions.

Other methodologies referenced in these transactions 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 PTSB 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.

The last rating action on Fastnet 3 took place on 3 November 2016, when DBRS confirmed Class A1 at AAA (sf) and upgraded Class A2 to AA (sf). The last rating action on Fastnet 10 took place on 3 November 2016, when DBRS upgraded Class A1, A2 and A3 to AAA (sf), AA (high) (sf), and AA (sf), respectively. The last rating action on Fastnet 12 took place on 12 October 2016, when DBRS finalised the ratings on Class A at AAA (sf), on Class B at AA (sf), and on Class C at A (high) (sf).

For Fastnet 12, 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):

-- For Fastnet 3, the base case PD and LGD assumptions for the remaining collateral pool are 21.78% and 39.48%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 46.60% and 72.33%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 43.93% and 64.91%, respectively.

-- For Fastnet 10, the base case PD and LGD assumptions for the remaining collateral pool are 13.60% and 39.67%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 41.00% and 71.81%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 38.05% and 64.50%, respectively. At the AA (sf) rating level, the corresponding PD and LGD are 34.84% and 62.94%, respectively.

-- For Fastnet 12, the base case PD and LGD assumptions for the remaining collateral pool are 6.99% and 22.21%, respectively. At the AAA (sf) rating level, the corresponding PD and LGD are 29.44% and 59.90%, respectively. At the AA (high) (sf) rating level, the corresponding PD and LGD are 26.70% and 50.39%, respectively. At the AA (low) (sf) rating level, the corresponding PD and LGD are 22.35% and 46.81%, respectively.

-- 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 Fastnet 3 Class A1 would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on Fastnet 3 Class A1 would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on Fastnet 3 Class A1 would be expected to be at AAA (sf).

Fastnet 3 Class A1 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 AAA (sf)

Fastnet 3 Class A2 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 (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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Fastnet 10 Class A1 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 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 (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

Fastnet 10 Class A2 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 (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 (low) (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 (sf)

Fastnet 10 Class A3 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 (low) (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)

Fastnet 12 Class A Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AA (high) (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 AA (high) (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 (low) (sf)

Fastnet 12 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 (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 (low) (sf)

Fastnet 12 Class C Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of A (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 (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 (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: Vito Natale, Senior Vice President
Fastnet 3 Initial Rating Date: 7 November 2014
Fastnet 10 Initial Rating Date: 27 November 2014
Fastnet 12 Initial Rating Date: 15 September 2016

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 these transactions can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- 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.