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Rating Action:

Moody's places on review for upgrade notes in ERLS 2017-NPL 1 and ERLS 2018-1

09 Jul 2019

Frankfurt am Main, July 09, 2019 -- Moody's Investors Service ("Moody's") has today placed on review for upgrade the ratings of four notes in Irish transactions European Residential Loan Securitisation 2017-NPL1 DAC ("ERLS 2017-NPL 1") and European Residential Loan Securitisation 2018-1 DAC ("ERLS 2018-1"). The rating action reflects higher cash flows in a shorter time frame than expected, as a result of the Portfolio Sale, conducted on 18 June 2019.

ERLS 2017-NPL 1 and ERLS 2018-1 are securitization transactions backed entirely (ERLS 2017-NPL 1) or partially (ERLS 2018-1) by non-performing loans ("NPL") extended primarily to borrowers in Ireland. The portfolios are serviced by Start Mortgages DAC ("Start"; NR) and Pepper Finance Corporation (Ireland) DAC ("Pepper"; NR). The servicing activities performed by Start and Pepper are monitored by Hudson Advisors Ireland DAC ("Hudson"; NR).

Issuer: European Residential Loan Securitisation 2017-NPL1 DAC

....EUR16.80M Class B Mortgage Backed Floating Rate Notes due July 2054, Baa3 (sf) Placed Under Review for Possible Upgrade; previously on Apr 28, 2017 Definitive Rating Assigned Baa3 (sf)

....EUR14.71M Class C Mortgage Backed Floating Rate Notes due July 2054, Ba3 (sf) Placed Under Review for Possible Upgrade; previously on Apr 28, 2017 Definitive Rating Assigned Ba3 (sf)

Issuer: European Residential Loan Securitisation 2018-1 DAC

....EUR215.40M (current outstanding balance EUR 61.8M) Class A Mortgage Backed Floating Rate Notes due January 2061, A2 (sf) Placed Under Review for Possible Upgrade; previously on Mar 21, 2018 Definitive Rating Assigned A2 (sf)

....EUR18.69M Class B Mortgage Backed Floating Rate Notes due January 2061, Ba3 (sf) Placed Under Review for Possible Upgrade; previously on Mar 21, 2018 Definitive Rating Assigned Ba3 (sf)

RATINGS RATIONALE

The rating action is prompted by higher cash flows in a shorter time frame than expected as a result of the Portfolio Sale on 18 June 2019.

ERLS 2017-NPL 1 only included NPL loans at closing, however a significant portion of the pool turned re-performing (33.96% as of May 2019 as per servicer's classification). Loans corresponding to an outstanding balance of EUR 110.54 million were sold for this transaction achieving a price of 83%. As a result EUR 77.38 million were applied to amortise Class A Notes and EUR 14.38 million were applied to amortise Class P Notes which we do not rate.

ERLS 2018-1 included performing loans at closing, but the performing portion increased to 51.8% as of May 2019 as per servicer's classification. Loans corresponding to an outstanding balance of EUR 155.15 million were sold for this transaction and achieved a price of 87%. EUR 116.36 million were applied to amortise Class A Notes, EUR 15.52 million were credited to the Portfolio Repurchase Reserve and EUR 3.44 million were applied to amortise Class P Notes which we do not rate, deleveraging the transaction significantly.

We expect to receive complete updated loan-by-loan information for the two transactions in the coming weeks. At that point we will analyse the cashflows expected from the remaining loans in the pool, assess if there is any deterioration in the credit quality of the remaining pools and/or any liquidity concerns and conclude the review of the transactions.

Principal Methodology

The principal methodology used in these ratings was "Moody's Approach to Rating Securitizations Backed by Non-Performing and Re-Performing Loans" published in February 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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

Factors or circumstances that could lead to an upgrade of the ratings include (1) that the recovery process of the defaulted loans produces significantly higher cash flows in a shorter time frame than expected and (2) improvements in the credit quality of the transaction counterparties.

Factors or circumstances that could lead to a downgrade of the ratings include (1) significantly less or slower cash flows generated from the recovery process on the NPLs due to either a longer time for the courts to process the foreclosures and bankruptcies, a change in economic conditions from our central scenario forecast or idiosyncratic performance factors. For instance, should economic conditions be worse than forecasted and the sale of the properties would generate less cash flows for the issuer or it would take a longer time to sell the properties, all these factors could result in a downgrade of the ratings, (2) deterioration in the credit quality of the transaction counterparties and (3) increase in sovereign risk.

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 a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

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.

Michal Kuehnel
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

Masako Oshima
Associate Managing Director
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Maria Turbica Manrique
Vice President - Senior Analyst
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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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