Fitch Assigns EDML 2018-I B.V.'s Notes Final Ratings.
Class A mortgage-backed floating-rate notes: 'AAAsf'; Outlook Stable
Class B mortgage-backed floating-rate notes: 'AA-sf'; Outlook Stable
Class C mortgage-backed floating-rate notes: 'A+sf'; Outlook Stable
Class D mortgage-backed floating-rate notes: 'A+sf'; Outlook Stable
Class E mortgage-backed floating-rate notes: 'Asf'; Outlook Stable
Class F mortgage-backed floating-rate notes: 'A-sf'; Outlook Stable
Class G mortgage-backed floating-rate notes: 'BBBsf'; Outlook Stable
Class H mortgage-backed floating-rate notes: not rated
Class RS excess spread notes: not rated
This is the third securitisation of prime Dutch mortgage loans originated by Elan Woninghypotheken B.V., with warehouse funding provided by Goldman Sachs Lending Partners LLC.
Credit enhancement (CE) for the class A notes at close is 10.8% and is provided by the subordination of the junior notes and a reserve fund sized at 1.3% of the class A to H notes balance at closing.
KEY RATING DRIVERS
Prime Mortgages; High LTVs
The funded portfolio is 3.2 months-seasoned and comprises prime mortgage loans. It features a lower proportion of interest-only (IO) loans (29.8% of the portfolio) than typically seen in Dutch RMBS, a high weighted average (WA) original loan-to-market value (OLTMV) of 99.4% and self-employed borrowers make up 5.5% of the total pool.
Almost 95% of borrowers in the pool have the option to 'port' their mortgage balance and terms in case they move home. The ported loan balance can be increased via an additional loan part, subject to full re-underwriting of the loan. Additional loan parts and further advances are limited, but potential increases in OLTMVs as a result of downsizing are not. To address this risk, Fitch has not given any credit to increasing recoveries as a result of portfolio amortisation. This constitutes a variation to Fitch's criteria.
The class A to G notes each have an allocated reserve fund, funded through the RS notes. Only the class A notes' reserve fund can amortise. Interest on the class B to G notes rank subordinated to their respective reserve funds and can be deferred if the respective class principal deficiency ledger (PDL) is debited. The mismatch between the fixed-rate loans (99.8%) and the floating-rate notes is hedged through a swap agreement. However, the loan reset risk remains with the issuer, and is assessed in line with Fitch's European RMBS Rating Criteria.
Up to EUR104.5 million of further loans may be acquired by the issuer up to and including the first payment date in July 2018. Note over-issuance will be credited to a pre-funding reserve to execute these further purchases. Fitch has been provided with the closing pool of EUR395.5 million, alongside an additional pool of EUR131.4 million containing further loans identified for future sale (together, the full pool). Fitch has analysed the transaction by reference to the full pool.
VARIATIONS FROM CRITERIA
The transaction documentation envisages a limit on further advances and additional loan parts to a quarterly equivalent of 1.5% (per year) of the note balance at the start of the note payment date. However, the transaction documentation does not limit the potential risk of borrowers releasing equity from their properties by downsizing and increasing their LTMVs in a scenario where the economic background deteriorates noticeably after sustained property price growth. To address this risk, in its cash flow analysis, Fitch did not account for loan amortisation when projecting recoveries after a loan default. This constitutes a variation from the European RMBS Rating Criteria, which state that for annuity, linear, and savings mortgages, Fitch will calculate a recovery rate for each year of the transaction life after closing, projecting each loan's outstanding balance forward using its amortisation profile.
Material increases in the frequency of foreclosures and loss severity on foreclosed receivables could produce losses larger than Fitch's base case expectations, which in turn may result in negative rating action on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would imply a downgrade of the class A notes to 'AA+sf' from 'AAAsf'.
More detailed model-implied ratings sensitivity can be found in the new issue report, which is available at www.fitchratings.com.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of Quion's origination files in November 2017 and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by Quion as at 30 November 2017
- Static vintage defaults, loss figures and dynamic performance data, including comparable proxy data on Elan's and Hypotrust's mortgage loan book;
- A portfolio of foreclosed properties on Quion's loan book between 2001 and 2015
Cash Flow Model.
REPRESENTATIONS AND WARRANTIES
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class, as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jun 9, 2018|
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