Morningstar DBRS Finalises Provisional Credit Ratings on Castell 2025-1 PLC

DBRS Ratings Limited (Morningstar DBRS) finalised its provisional credit ratings on the residential mortgage-backed notes to be issued by Castell 2025-1 PLC (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at BB (low) (sf)
-- Class X1 Notes at BB (high) (sf)

The credit ratings assigned to the Class B, Class C, Class D, Class E, and Class F Notes differ from the previously assigned credit ratings of AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf) and B (sf), respectively. This is mainly because of the lower-than-expected margins of the liabilities, which improved the cash flow analysis of these notes in Morningstar DBRS' rating stress scenarios.

The credit rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal on or before the final maturity date in January 2062. The credit ratings on the Class B, Class C, Class D, Class E, and Class F Notes address the timely payment of interest once they are the senior-most class of notes outstanding, otherwise the ultimate payment of interest and the ultimate repayment of principal on or before the final maturity date. The credit rating on the Class X1 Notes addresses the ultimate payment of interest and principal. Morningstar DBRS does not rate the Class G, Class H, and Class X2 Notes or the residual certificates also expected to be issued in this transaction.

CREDIT RATING RATIONALE
The Issuer is a bankruptcy-remote, special-purpose vehicle incorporated in England and Wales. The notes issued funded the purchase of UK second-lien mortgage loans originated by UK Mortgage Lending Limited (UKMLL). Pepper (UK) Limited (Pepper) is the primary and special servicer of the portfolio. UKMLL, established in November 2013 as Optimum Credit Limited, is a specialist provider of second-lien mortgages based in Cardiff, Wales. Both UKMLL and Pepper are part of the Pepper Group Limited, a worldwide consumer finance business, third-party loan servicer, and asset manager. Law Debenture Corporate Services Limited acts as the backup servicer facilitator for the transaction.

The mortgage portfolio consists of GBP 287.3 million in second-lien owner-occupied mortgages secured by properties in the UK.

The transaction includes a prefunding mechanism where the seller has the option to sell the mortgage loans to the Issuer subject to certain conditions to prevent a material deterioration in credit quality (the Conditions for Acquisition of Additional Mortgage Loans). As of the 31 March 2025 reference date, the mortgages loans expected to be acquired in this transaction amounted to GBP 51.0 million. The acquisition of these assets will occur before the second interest payment date using the proceeds standing to the credit of the prefunding reserves. Any funds that are not applied to purchase additional loans will flow through the pre-enforcement principal priority of payments and pay down the notes on a pro rata basis.

The Issuer issued eight tranches of collateralised mortgage-backed securities (the Class A Notes as well as the Class B, Class C, Class D, Class E, Class F, Class G, and Class H Notes) to finance the purchase of the portfolio and the prefunding principal reserve ledger at closing. The Issuer also issued two classes of noncollateralised notes, the Class X1 and Class X2 Notes.

The transaction is structured to initially provide 24.60% of credit enhancement to the Class A Notes comprising subordination of the Class B to Class H Notes.

The transaction features a fixed-to-floating interest rate swap, given the significant portion of fixed-rate loans (with a compulsory reversion to floating in the future), while the liabilities will pay a coupon linked to the daily compounded Sterling Overnight Index Average. The swap counterparty is Lloyds Bank Corporate Markets PLC (Lloyds). Based on Morningstar DBRS' private credit rating on Lloyds, the downgrade provisions outlined in the documents, and the transaction's structural mitigants, Morningstar DBRS considers the risk arising from the exposure to Lloyds to be consistent with the credit ratings assigned to the rated notes as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Citibank N.A./London Branch acts as the Issuer Account Bank and National Westminster Bank Plc as the Collection Account Bank. Morningstar DBRS privately rates both entities and considers them to meet the eligible credit ratings in structured finance transactions and to be consistent with the credit ratings assigned to the rated notes as described in Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology.

Liquidity support is provided by a liquidity reserve fund (LRF), which will cover senior costs and expenses as well as interest shortfalls on the Class A and Class B Notes. The LRF is sized at 1.0% of the Class A and Class B Notes, and amortises in line with these notes with no triggers. In addition, principal borrowing is also envisaged under the transaction documentation and can be used to cover senior costs and expenses as well as interest shortfalls on the Class A to Class H Notes; however, this will be subject to a principal deficiency ledger (PDL) condition which states that, if a given class of notes is not the most senior class outstanding, when a PDL debit of more than 10% of such class exists, principal borrowing will not be available. Interest shortfalls on the Class B to Class H Notes, as long as they are not the most senior class outstanding, will be deferred and will not be recorded as an event of default until the final maturity date or such earlier date on which the notes are fully redeemed.

Morningstar DBRS based its credit ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including the form and sufficiency of available credit enhancement.
-- The credit quality of the mortgage portfolio and the ability of the servicer to perform collection and resolution activities. Morningstar DBRS estimated stress-level probability of default (PD), loss given default (LGD), and expected losses (EL) on the mortgage portfolio. Morningstar DBRS used the PD, LGD, and EL as inputs into the cash flow engine. Morningstar DBRS analysed the mortgage portfolio in accordance with its "European RMBS Insight Methodology".
-- The transaction's ability to withstand stressed cash flow assumptions and repay the Class A, Class B, Class C, Class D, Class E, Class F, and Class X1 Notes according to the terms of the transaction documents.
-- The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as a downgrade, and replacement language in the transaction documents.
-- The sovereign credit rating of AA with a Stable trend on the United Kingdom of Great Britain and Northern Ireland as of the date of this press release.
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology and the presence of legal opinions that are expected to address the assignment of the assets to the Issuer.

Morningstar DBRS' credit ratings on the rated notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related interest amounts and the related class balances.

Morningstar DBRS' credit ratings on the rated notes also address the credit risk associated with the increased rate of interest applicable to each of the rated notes if the rated notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) at https://dbrs.morningstar.com/research/454196.

Morningstar DBRS analysed the transaction structure in Intex DealMaker, considering the default rates at which the rated notes did not return all specified cash flows.

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

The principal methodology applicable to these credit ratings is: European RMBS Insight Methodology (8 May 2025), https://dbrs.morningstar.com/research/453613.

Other methodologies referenced in this transaction are listed at the end of this press release.

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

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these provisional credit ratings include those provided by Pepper and its representatives. Morningstar DBRS received loan-level, property, and margin data as of 31 March 2025 and the following historical data:
-- Dynamic delinquencies from January 2017 to January 2025.
-- Cumulative monthly prepayments by origination vintage from Q3 2014 to Q4 2024.
-- Possessions and litigations from June 2019 to June 2024.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

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

These credit ratings concern newly issued financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

This is the first credit rating action since the Initial Credit Rating Date.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on http://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- In respect of the Class A Notes, a PD of 23.8% and an LGD of 84.7% corresponding to the AAA (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class B Notes, a PD of 20.7% and an LGD of 79.4% corresponding to the AA (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class C Notes, a PD of 16.8% and an LGD of 71.9% corresponding to the A (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class D Notes, a PD of 12.0% and an LGD of 63.5% corresponding to the BBB (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class E Notes, a PD of 7.3% and an LGD of 55.6% corresponding to the BB (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class F Notes, a PD of 6.2% and an LGD of 53.9% corresponding to the BB (low) (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.
-- In respect of the Class X1 Notes, a PD of 8.0% and an LGD of 58.1% corresponding to the BB (high) (sf) credit rating scenario was stressed assuming a 25% and 50% increase in the PD and LGD.

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AAA (sf)
-- 50% increase in LGD, expected credit rating of AAA (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of AA (low) (sf)
-- 50% increase in PD, expected credit rating of AA (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of A (low) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of A (high) (sf)
-- 50% increase in LGD, expected credit rating of A (sf)
-- 25% increase in PD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BBB (high) (sf)
-- 50% increase in LGD, expected credit rating of BBB (sf)
-- 25% increase in PD, expected credit rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BBB (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD, expected credit rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (high) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (sf)
-- 50% increase in PD, expected credit rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BB (low) (sf)

Class E Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in LGD, expected credit rating of B (high) (sf)
-- 25% increase in PD, expected credit rating of BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of B (sf)
-- 50% increase in PD, expected credit rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of below B (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of B (high) (sf)
-- 50% increase in LGD, expected credit rating of B (sf)
-- 25% increase in PD, expected credit rating of B (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of B (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of below B (sf)
-- 50% increase in PD, expected credit rating of B (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of below B (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of below B (sf)

Class X1 Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of BB (high) (sf)
-- 50% increase in LGD, expected credit rating of BB (sf)
-- 25% increase in PD, expected credit rating of (P) BB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of BB (low) (sf)
-- 50% increase in PD, expected credit rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of B (high) (sf)

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Sebastiano Romano, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 30 April 2025

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- European RMBS Insight Methodology (8 May 2025) and European RMBS Insight model v. 10.1.0.0, https://dbrs.morningstar.com/research/453613
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024), https://dbrs.morningstar.com/research/439571
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.