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Rating Action:

Moody's assigns provisional ratings to Dutch RMBS Notes to be issued by Cartesian Residential Mortgages 3 S.A.

29 Jun 2018

Frankfurt am Main, June 29, 2018 -- Moody's Investors Service ("Moody's") has assigned provisional credit ratings to the following classes of notes to be issued by Cartesian Residential Mortgages 3 S.A.:

....EUR [.] million Class A mortgage-backed notes 2018 due November 2052, Assigned (P)Aaa (sf)

....EUR [.] million Class B mortgage-backed notes 2018 due November 2052, Assigned (P)Aa2 (sf)

....EUR [.] million Class C mortgage-backed notes 2018 due November 2052, Assigned (P)A2 (sf)

....EUR [.] million Class D mortgage-backed notes 2018 due November 2052, Assigned (P)Baa3 (sf)

Moody's has not assigned any ratings to the Class E notes, the Class S notes and the Class X notes. The A to E notes are mortgage-backed. The proceeds of the Class S and Class X notes will be used to fund the reserve account.

The transaction represents the second securitisation of Dutch prime mortgage loans backed by residential properties located in the Netherlands originated by Venn Hypotheken B.V. (Venn, not rated). The portfolio will be serviced by the delegate servicer Stater Nederland B.V. (Stater, not rated) and Intertrust (Luxembourg) S.à r.l. (not rated) (Intertrust, not rated) will act in the role of issuer administrator.

At the provisional pool cut-off date, the portfolio consists of 663 loans with a total principal balance of €224.44 million. However, it is envisaged that on the closing date part of the proceeds of the notes issuance will be deposited in a separate account, and subsequently be used prior to the first notes payment date to finance the purchase by the issuer of additional loans. The additional pool consists of 168 loans with a total principal balance of €61.69 million as of the provisional pool cut-off date. If the applicable additional purchase conditions are satisfied, the issuer will purchase these loans from the seller up to the amount of €[?] million.

Moody's analysis of this transaction is based on the combined pool data.

RATINGS RATIONALE

The ratings of the notes take into account, among other factors: (1) the historical performance of the collateral; (2) the credit quality of the underlying mortgage loan pool, (3) the seasoning of the loan pool, (4) the initial credit enhancement provided to the senior notes by the junior notes and the reserve fund, and (5) the legal and structural features of this transaction.

--Expected Loss and MILAN CE Analysis

Moody's determined the MILAN credit enhancement (MILAN CE) and the portfolio's expected loss based on the pool's credit quality. The expected portfolio loss (EL) of 1.75% and the MILAN CE of 12.5% serve as input parameters for Moody's cash flow model, which is based on a probabilistic lognormal distribution. The MILAN CE reflects the loss Moody's expects the portfolio to suffer in the event of a severe recession scenario.

The key drivers for the MILAN CE number, which is higher than the Dutch Prime RMBS sector average (7.2%), are (i) the limited historical performance data for the originator's portfolio; (ii) the weighted average current loan-to- market-value (LTMV) of 96.31%, and (iv) the weighted average seasoning of 0.43 years with the maximum vintage concentration of 51.4% in 2018.

The key drivers for the portfolio expected loss, which is higher than the Dutch Prime RMBS sector average (0.9%) and is based on Moody's assessment of the lifetime loss expectation, are (i) the limited historical performance data for the originator's portfolio; (ii) benchmarking with comparable transactions in the Dutch RMBS market, and (iii) the current economic conditions in the Netherlands.

--Operational Risk Analysis

Neither the servicer, Ember VRM S.à r.l., nor the delegate servicer, Stater, is rated by Moody's. This introduces operational risk into the transaction. The issuer administrator and security trustee act as back-up servicer facilitator and will assist the Issuer in appointing a back-up servicer on a best effort basis upon termination of the servicing agreement. The documentation also contains estimation language if the servicer report is not available due to the servicer disruption. In addition, Intertrust acts in the role of cash manager.

--Transaction structure

The transaction has the benefit of liquidity through an amortising reserve account fully funded at 2.0% of the initial balance of Classes A to E. The total reserve fund is split into the Reserve Fund 1 and the Reserve Fund 2. The Reserve Fund 1 Required Amount is equal to 1.25% of Classes A and B outstanding amount and will be available only to cover senior expenses, Class A interest, Class A PDL and Class B interest. The Reserve Fund 1 will be released only after Classes A and B are fully repaid. The Reserve Fund 2 is equal to the difference between the total reserve fund and the Reserve Fund 1, and will be used to cover interest shortfalls and to cure PDL on Classes A to D.

--Interest Rate Risk Analysis

100% of the pool balance is comprised of fixed rate mortgage loans with different reset frequencies. The notes pay three-month EURIBOR plus a margin, which means there is an interest mismatch in the transaction. To mitigate the fixed-floating mismatch, the issuer will enter into a swap agreement with the swap counterparty, BNP Paribas (Aa3/P-1; Aa3(cr)/P-1(cr)). However, this is not a typical Dutch swap providing guaranteed excess spread in the transaction. The issuer will pay to the swap counterparty the swap notional amount multiplied by the swap rate plus the prepayment penalties for fixed rate mortgage loans. In return, the Issuer will receive the swap notional multiplied by the three-month EURIBOR rate. Moody's has taken into consideration the interest rate swap in its cash flow modelling.

--Stress Scenarios:

Moody's Parameter Sensitivities: At the time the rating was assigned, the model output indicated that the Class A notes would have achieved a Aa1(sf) rating if the expected loss was as high as 5.25% and the MILAN CE was as high as 15% and all other factors remained the same.

Moody's Parameter Sensitivities provide a quantitative/model-indicated calculation of the number of rating notches that a Moody's structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged and is not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the security might have differed if key rating input parameters were varied. Parameter Sensitivities for the typical EMEA RMBS transaction are calculated by stressing key variable inputs in Moody's primary rating model.

The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Please see Moody's Approach to Rating RMBS Using the MILAN Framework for further information on Moody's analysis at the initial rating assignment and the on-going surveillance in RMBS.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that would lead to an upgrade of the ratings include economic conditions being better than forecast resulting in better-than-expected performance of the underlying collateral.

Factors that would lead to a downgrade of the ratings include economic conditions being worse than forecast resulting in worse-than-expected performance of the underlying collateral, deterioration in the credit quality of the counterparties and unforeseen legal or regulatory changes.

The provisional ratings address the expected loss posed to investors by the legal final maturity of the notes. In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal with respect to the Class A, Class B, Class C and Class D notes by the legal final maturity. Moody's ratings only address the credit risk associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

Moody's issues provisional ratings in advance of the final sale of securities, but these ratings only represent Moody's preliminary credit opinion. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a provisional rating.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stanislav Nastassine
Vice President - Senior Analyst
Structured Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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