Fitch Assigns STORM 2017-I B. V.'s Notes Expected Ratings
Class A floating-rate notes: 'AAA(EXP)sf'; Outlook Stable
Class B floating-rate notes: 'A+(EXP)sf'; Outlook Stable
Class C floating-rate notes: 'BBB(EXP)sf'; Outlook Stable
Class D floating-rate notes: 'B(EXP)sf'; Outlook Stable
Class E floating-rate notes: not rated
This transaction is a true sale securitisation of prime Dutch residential mortgage loans originated and sold by Obvion N. V., an established mortgage lender and issuer of securitisations in the Netherlands. Since May 2012, Obvion has been 100%-owned by Cooperatieve Rabobank U. A. (Rabobank). This is the 36th transaction issued under the STORM series since 2003, and the first such transaction with a revolving feature.
The expected ratings address timely payment of interest on the class A and B notes, including the step-up margin accruing from the payment date falling in January 2022, and full repayment of principal by legal final maturity in accordance with the transaction documents. The final ratings are contingent upon the receipt of final documents and legal opinions conforming to the information already received.
Credit enhancement (CE) for the class A notes will be 8% at closing, provided by the subordination of the junior notes and a non-amortising cash reserve (1%), fully funded at closing through the class E notes.
KEY RATING DRIVERS
Market Average Portfolio
This is an 81-month seasoned portfolio consisting of prime residential mortgage loans, with a weighted average (WA) original loan-to-market-value (OLTMV) of 88.3% and a WA debt-to-income ratio (DTI) of 27.54%, both of which are typical for Fitch-rated Dutch RMBS transactions and in line with previous STORM transactions.
A five-year revolving period will allow new assets to be added to the portfolio. In Fitch's view, the additional purchase criteria adequately mitigate the significant risk of migration due to future loan additions. Fitch considered a stressed portfolio composition, based on the additional purchase criteria, rather than the actual portfolio characteristics.
Interest Rate Hedge
At close, a swap agreement will be entered into with Obvion to hedge any mismatches between the fixed and floating interest on the loans and the floating interest on the notes. In addition, the swap agreement guarantees a minimum level of excess spread for the transaction, equal to 50bp per annum of the outstanding class A through D notes' balance, less principal deficiency ledgers (PDLs). The remedial triggers are linked to the parent's ratings (Rabobank).
Rabobank Main Counterparty
This transaction relies strongly on the creditworthiness of Rabobank, which fulfils a number of roles. Fitch analysed the structural features in place, including those mitigating construction deposit set-off and commingling risk and concluded that counterparty risk is adequately addressed.
Past performance of transactions in the STORM series, as well as data received on Obvion's loan book, indicate healthy historical performance in terms of low arrears and small losses.
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce losses larger than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 15% increase in the WA foreclosure frequency, along with a 15% decrease in the WA recovery rate, would result in a model-implied-downgrade of the class A notes to 'A+(EXP)sf', class B notes to 'BBB+(EXP)sf', class C notes to 'BB-(EXP)sf' and the class D and E notes to below 'B(EXP)sf'.
More detail on key rating drivers and rating sensitivities are further described in the accompanying presale report which is available at www. fitchratings. com or by clicking the link above.
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 Obvion's origination files 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 and together with the assumptions referred to above, 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 Obvion as at 1 November 2016
- Transaction reporting provided by Obvion as at end-October 2016
- Static vintage defaults, loss figures and dynamic performance data on Obvion's mortgage loan book between 2002 and 2016
- Investor reports for the existing STORM transactions
- A portfolio of 3,730 foreclosed properties (after correcting for missing data), representing all loans foreclosed since 2002, provided by Obvion
EMEA 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.