DBRS Confirms Penates Funding N.V./S.A. – Compartment Penates-4

DBRS Ratings Limited (DBRS) has today confirmed the following ratings of Penates Funding N.V./S.A. – Compartment Penates-4 (the Issuer):
-- Class A notes at A (high) (sf);
-- Class B notes at A (low) (sf).

The confirmation of the ratings on the Class A and Class B notes is based upon the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the November 2014 payment date.
-- Updated portfolio default rate, loss given default and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancements for the Class A and Class B notes to cover the expected losses at the A (high) (sf) and A (low) (sf) rating level, respectively.

Penates Funding N.V./S.A. – Compartment Penates-4 is a securitisation of a portfolio of first-ranking Belgian residential mortgage loans originated and serviced by Belfius Bank SA/NV. The transaction follows the standard structure under the Belgian Securitisation Law and closed in December 2011.

The mortgage pool is well-seasoned (over seven years) and about 58% of the loans in the current portfolio were originated in recent vintages, spanning from 2008 to 2011.

The portfolio is performing in line with DBRS’s expectations. The gross cumulative default ratio (as a percentage of the original balance of the portfolio) increased over the year reaching 0.59% in November 2014, up from 0.32% in November 2013. However, the ratio is still below DBRS’s base case portfolio default rate of 1.19%.

The Class A Notes are supported by subordination of the Class B and Class C Notes, while the Class B Notes are supported by the Class C Notes only. Credit enhancement to the Class A and Class B Notes (as a percentage of the performing balance of the portfolio) increased to 18.12% and 8.84% in November 2014, respectively, up from 14.20% and 6.93% in November 2013. This has been the result of the amortisation of Class A Notes.

An amortising reserve fund of EUR 117.00 million was funded on day one to cover interest shortfalls on the Class A Notes and senior swap termination amounts. The reserve fund (equal to 2.30% of the current balance of the collateralised notes) is currently at the initial and target level of EUR 117.00 million.

Approximately 61.02% of the loans in the portfolio pay a fixed rate of interest, while the remaining loans pay a variable rate of interest linked to different indexes. Interest paid on the notes is linked to 3-month Euribor. The interest rate risk is hedged by two separate swaps: a senior swap and a junior swap. The senior swap hedges the interest rate risk on the outstanding balance of the Class A Notes and the junior swap on the outstanding balance of the Class B and the Class C Notes.

Belfius Bank SA/NV is the account bank for this transaction. The DBRS public rating of Belfius Bank SA/NV is at least equal to the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in the DBRS Legal Criteria for European Structured Finance Transactions. In addition, Belfius Bank SA/NV also acts as senior and junior swap counterparty for the transaction. The DBRS public rating of Belfius Bank SA complies with the applicable DBRS Derivative Criteria for European Structured Finance Transactions.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

The sources of information used for this rating include investor reports provided by Belfius Bank SA/NV and data from the European DataWarehouse. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 8 April 2014, when DBRS downgraded the rating of the Class A Notes to A (high) (sf) from AAA (sf) and the rating of the Class B Notes to A (low) (sf) from A (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies are 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 lifetime base case Probability of Default (PD) and Loss Given Default (LGD) for the pool based on a review of the current receivables. 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 of the current pool of mortgages for the Issuer are 1.19% and 25.27%, respectively. At the A (high) (sf) rating level, the corresponding PD is 8.89% and the LGD is 37.09%.
-- 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 of the Class A notes would be expected to remain at A (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A notes would be expected to remain at A (high) (sf), assuming no change in the LGD. Furthermore, if both PD and LGD increase by 50%, the rating for the Class A notes would be expected to remain at A (high) (sf).

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

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

For further information on DBRS historic default rates published by the European Securities and Markets Administration (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 regulations only.

Initial Lead Analyst: Kali Sirugudi
Initial Rating Date: 20 November 2011
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Elisa Scalco
Rating Committee Chair: Quincy Tang

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960.

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

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