Fitch Assigns Hypenn RMBS IV B.V.'s Notes Final Ratings
EUR144m Class A1 floating-rate notes: 'AAAsf'; Outlook Stable
EUR406m Class A2 floating-rate notes: 'AAAsf'; Outlook Stable
EUR38.2m Class B: not rated
This transaction is a true sale securitisation of prime mortgage loans originated in the Netherlands by Nationale-Nederlanden Bank N.V. (NNB) and Nationale-Nederlanden Levensverzekering Maatschappij N.V. (NNL), which are wholly owned subsidiaries of NN Group N.V. This is the fourth RMBS transaction from NNB.
The ratings address the timely payment of interest, including the step-up margin accruing from the payment date falling in July 2020, and full repayment of principal by legal final maturity in accordance with the transaction documents.
Credit enhancement (CE) for the class A notes is 6.5% at closing, provided by the subordination of the junior notes.
KEY RATING DRIVERS
The 58-month seasoned static portfolio consists of prime residential mortgage loans with a weighted average (WA) original loan-to-market value (OLTMV) of 94.8% and a debt-to-income ratio (DTI) of 27.1%. The WA OLTMV is around 6% above the level typically seen in Fitch-rated Dutch RMBS transactions.
Very Long Note Maturity
Of the loans, 20.2% are perpetual interest-only and do not have a final maturity date. The final legal maturity of the notes is therefore extended and adds uncertainty to the transaction.
No NHG Loan Foreclosure Adjustment
Of the loans, 26.4% benefit from a Nationale Hypotheek Garantie (NHG guarantee). No reduction in foreclosure frequency for the NHG loans was applied, as historical data provided did not show a clear pattern of lower defaults for NHG loans of the originator. Fitch was also provided with data on historical claims, which enabled the agency to determine a compliance ratio assumption.
A cash advance facility of 2% of the class A notes (floored at 1% of class A at close) is available as liquidity support to meet senior costs and class A interest shortfalls. The non-amortising reserve fund will only build up after close through excess spread to its target of 1% of the class A notes at close.
The issuer has a fixed-floating interest rate swap agreement with ING Bank N.V. to hedge the mismatch between the fixed-rate loans and the floating-rate class A1 and A2 notes. Under the swap, the issuer exchanges scheduled interest on the mortgages, less senior fees and excess spread of 0.5%, in return for interest owed on the A1 and A2 notes, less any recorded principal deficiency.
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 30% increase in the WA foreclosure frequency, along with a 30% decrease in the WA recovery rate, would result in a model-implied-downgrade of the class A notes to 'A-sf'.
More detail on key rating drivers and rating sensitivities are further described in the accompanying new issue report which is available at www.fitchratings.com.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
For its rating analysis, Fitch received a data template with all fields fully completed.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information. This is the same agreed-upon procedures (AUP) report as received for the previous Hypenn III transaction, as the remaining assets of the eligible mortgage pool are being securitised in this transaction
The report indicated a higher number of errors than typically encountered in regard to the properties' market values and borrower's income. Hence, Fitch made conservative adjustments to the properties' market values and borrowers' income for a certain proportion of the pool, reflecting the respective error rates shown in the AUP.
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 tape in Fitch's ResiEMEA template provided by NNB as at 31 August 2015
- Static cumulative and dynamic arrears data on NNB's mortgage loan book
- Investor reports for the existing Hypenn transactions
- A portfolio of 2,186 foreclosed properties (after correcting for missing data), representing all loans foreclosed since 2005 provided by NNB
- The House Price Index from the CBS (Statistics Netherlands)
The models below were used in the analysis. Click on the link for a description of the model.
-EMEA Cash Flow Model
REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for that asset class is available by accessing the appendix that accompanies the presale report (see "Hypenn RMBS IV B.V. - Appendix", at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.