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 Shamrock Residential 2022-1 DAC on 16 February 2023 and considered the investor reporting up to January 2023. The credit ratings remain as follows:

Class A (XS2441643827): EUR 378.1m: AAA_SF

Class B (XS2441644551): EUR 30.8m: AA+_SF

Class C (XS2441645012): EUR 28.0m: A+_SF

Class D (XS2441645285): EUR 21.0m: BBB+_SF

Class E (XS2441645442): EUR 21.0m: BB+_SF

Class F (XS2441645525): EUR 8.4m: B+_SF

Class G (XS2441645871): EUR 11.2m: B-_SF

Scope does not rate the Class RFN, the Class Z and Class X notes, which combine for a principal amount of EUR 27.3m.

Shamrock Residential 2022-1 DAC is a true-sale securitisation of an Irish residential mortgage pool. The purpose of the transaction is to refinance loan pools acquired by Coll Residential DAC and it is serviced by Mars Capital Finance Ireland DAC (Mars Capital) and Cabot Financial (Ireland) Ltd (Cabot Financial).

The underlying pool, as of January 2022, consists of 4,057 mainly reperforming mortgage loans originated by different retail lenders predominantly in Ireland. The mortgage loans finance 3,271 properties with a current indexed collateral value of EUR 1,191.4m. Many of these loans (69%) have been restructured during their already quite long life (weighted average seasoning 15.1 years) or are expected to be restructured to make them performing on a sustainable basis, in line with regulatory requirements from the Central Bank of Ireland. The portfolio benefits from a moderate weighted average loan-to-value ratio of 66% considering indexed latest valuations. The properties are concentrated in Dublin (38%).

The structure comprises 10 classes of notes with fully sequential principal amortisation and two cash reserve funds (liquidity and non-liquidity reserve fund). Class A will pay a floating rate indexed to 1-month Euribor, plus a margin of 0.85% or a step-up margin of 1.5% from September 2024. The ratings on the Class B to G notes reflect a periodic minimum of: i) the index plus margin or step-up margin on the notes, as applicable; and ii) the net weighted average coupon, in accordance with the transaction documentation and Scope’s assumption of portfolio interest and senior fees.

The transaction closed on 16 March 2022. The legal final maturity is 24 January 2061.

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

The rated notes benefit from their respective credit enhancement, which has increased from closing, due to amortisation. The liquidity reserves remain fully funded and the portfolio performs in line with expectations. The Irish economic situation remains supportive for house prices. However, rising inflation, volatile energy prices and rising interest rates may impair private households’ debt service ability.

Moreover, rising interest rates reduce the transaction’s liquidity coverage, which is however still sufficient to support the assigned ratings.

Credit-positive (+)

Transaction performance. Serious arrears have remained relatively constant since closing, while prepayments of 6.69% have helped to deleverage the structure faster than expected. Portfolio losses to date mainly comprise of losses from restructured loans that were known and factored in at closing and to a lesser extend from redemption-related losses.

Transaction liquidity. The liquidity mechanics support the structure to remain current on the rated notes. The available liquidity reserves are at their respective target levels.

Credit-negative (-)

High (re)default risk. A high proportion of the loans were restructured in the past or are currently being restructured. Scope’s lifetime portfolio default rate distribution captures high expected defaults, indicated by the higher risks from reperforming loans as well as the uncertainty from those loans which are currently more than three months in arrears and may not become reperforming.

Volatile property market. Despite continuous improvements, Ireland’s property market is among the most volatile and thus most risky in Europe. This is reflected in our property value assumptions and haircuts.
Prices have returned to the highs seen before the 2007 Great Financial Crisis, reflecting high demand for residential properties in Ireland, fuelled by cheap credit. However, demand may decline if the macroeconomic recovery stops, or interest rates rise significantly.

Limited excess spread. The transaction’s excess spread is low and further reduced through the rising reference rates, while a portion of the assets pays a fixed rate. Moreover, the interest from the portfolio is also volatile, due to the low credit quality of the obligors, which limits the efficiency of principal deficiency ledgers and makes the transaction rely more on reserve funds.

The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 25 January 2023; 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

Potential conflicts
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 Other Services 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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