Scope has completed a monitoring review of Warrington Residential 2022-1 DAC- Irish NPL
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for Warrington Residential 2022-1 DAC on 31 January 2023. Credit ratings remain as follows:
Class A1 (ISIN: XS2439881108), EUR 168.2m: rated A-SF
Class A2 (ISIN: XS2439881280), EUR 25.0m: rated BBB-SF
Class B (ISIN: XS2439881447), EUR 12.0m: rated BBSF
Class C (ISIN: XS2439881520), EUR 10.0m: rated BSF
Class Z1 (ISIN: XS2439881876): not rated
Class Z2 (ISIN: XS2439882171): not rated
Class X: not rated
As per the documentation, the ratings for Class A1 and Class A2 reflect timely payment of interest and principal, while for Class B and Class C, the ratings reflect ultimate payment of interest and principal payment by final maturity. The payment of the additional note interest for any of the instruments is explicitly not covered by the ratings.
Warrington Residential 2022-1 DAC is a EUR 403.3m gross-book-value (GBV) securitisation of Irish non-performing residential mortgage loans originated by five Irish residential mortgage lenders and serviced by Mars Capital, a special loan servicer active in Ireland. Unlike in other NPL transactions, a significant portion of the portfolio is paying interest and principal, making loan restructuring a more viable option than property foreclosure. The deal closed on 22 February 2022.
The review was conducted based on available investor report information and performance reporting as of the 29 December 2022 interest payment date. This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
As of the December 2022 payment date, actual total collections from property sales and ongoing collections amounted to EUR 26.8m, which represents around 93% of the original business plan expectations of EUR 28.9m up to the same period.
There has been a steady increase in the balance of loans with less than or equal to 3 months in arrears since closing, confirming loan restructuring activities performed by the servicer as anticipated at closing. The current performing balance of EUR 39.0m however falls short of the servicer’s expectations of EUR 49.0m for the same period.
No event that could trigger a transaction default has occurred as per the last investor report dated December 2022.
The ratings consider the issuer’s exposure to key counterparties.
Strong interest rate risk protection. The structure implements an interest rate cap agreement for the first four years of the deal, which provides an interest risk hedge for class A and B rated notes. Upon expiration of the cap agreement a contractual cap for the notes’ coupons start to apply, with the payable base rate capped through the life of the notes.
Sufficient liquidity. The transaction features dedicated reserves to ensure the timely payment of interests and senior costs. Additionally, collections from re-performing loans support the transaction until they are optionally re-purchased by the seller at a minimum price of 80%of their outstanding balance.
Challenging environment for Irish householders. The impact of high inflation negatively impacts borrower’s financial resilience due to high costs of living and erosion of real disposable income. This is generally not supportive of borrower’s willingness to service debts. Additionally, property prices could be impaired making it more difficult to sell off assets at high prices.
The methodologies applicable for the reviewed rating (General Structured Finance Rating Methodology, 25 January 2023; Non-Performing Loan ABS Methodology, 5 August 2022; Counterparty Risk Methodology, 14 July 2022) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Sebastian Dietzsch, Senior Director.
Person responsible for the approval of the monitoring note: Benoit Vasseur, Executive Director.
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings. Scope Ratings provided the following Ancillary Service(s) to the Rated Entity and/or its Related Third Parties within the two years preceding this Credit Rating action: Credit Estimate.
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