Rating action

Scope Ratings GmbH (Scope) has performed the following rating action after completing a monitoring review on the notes issued by Shamrock Residential 2022-1 DAC:

Class A (XS2441643827): EUR 328.1m: affirmed at AAA_SF

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

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

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

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

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

Class G (XS2441645871): EUR 11.2m: affirmed at 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.

Scope’s review was based on servicer, investor and payment reporting as of the 24 November 2023 payment date. The ratings address the timely payment of interest and repayment of principal on or before the final maturity date.

The rating action incorporates the correction of an input error. Previously, the calculation of the interest rate applicable for the rated notes Class B through Class G accounted for too high costs. Following the error correction, the applicable interest rate is higher, which increases the liability costs, but had no impact on the rating of the notes. Scope undertook a full analytical review.

Transaction overview

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.

Transaction performance. Serious arrears have remained relatively constant since last review, while prepayments of 7.29% 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.

Rating rationale

The rating action reflects i) the sound collateral performance to date; ii) the supporting macroeconomic environment in Irland; iii) the updates to the transaction’s liability structure and liquidity; and iv) the issuer’s exposure to key transaction counterparties.

Key rating drivers

The transaction’s key rating drivers are broadly aligned with those in Scope’s last review on 21 February 2023 and at closing on 16 March 2022.^1,2

Rating-change drivers

Better than expected asset performance may positively impact the ratings. If restructurings prove to be sustainable solutions for the borrowers, default risk and recovery expectations may improve (upside).

Macroeconomic uncertainty and risks of a global growth slowdown may weigh negatively on the performance of the collateral pool, due to the retrieval of foreign investment in Ireland, leading to a long-lasting deterioration in employment levels and a potential sovereign crisis (downside).

Quantitative analysis and assumptions

Scope analysed the transaction’s structural features using a proprietary cash flow model. The cash flow model inputs also feature the key asset assumptions derived during the analysis of the transaction, including a stochastic distribution of portfolio defaults and rating-conditional recovery rates.

Scope calculated the expected loss of each tranche based on an inverse Gaussian default distribution for the assets, probability-weighting any loss. The cash flow tool also produced the expected weighted average life for the rated notes.

Scope has updated its modelling assumptions to reflect the further seasoning of the underlying portfolio. The analysis considered an expected portfolio default rate of 19.6% and a coefficient of variation of 34.4%.

Scope maintained the assumed rating-conditional recovery rates for each class at: Class A 54%, Class B 60%, Class C 66%, Class D 72%, Class E 77%, and Class F and G 81%.

Sensitivity analysis

Scope tested the resilience of the rating against deviations in the main input parameters: the portfolio’s expected default rate and the portfolio’s recovery rate. This analysis has the sole purpose of illustrating the sensitivity of the rating to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the ratings would change if the portfolio’s expected default rate is increased by 50% and the portfolio’s expected recovery rate is reduced by 50%, respectively:

Class A: sensitivity to probability of default, 1 notch; sensitivity to recovery rates, 1 notch.

Class B: sensitivity to probability of default, 3 notches; sensitivity to recovery rates, 4 notches.

Class C: sensitivity to probability of default, 3 notches; sensitivity to recovery rates, 5 notches.

Class D: sensitivity to probability of default, 3 notches; sensitivity to recovery rates, 6 notches.

Class E: sensitivity to probability of default, 2 notches; sensitivity to recovery rates, 6 notches.

Class F: sensitivity to probability of default, 2 notches; sensitivity to recovery rates, 5 notches.

Class G: sensitivity to probability of default, 1 notches; sensitivity to recovery rates, 3 notches.

Rating driver references
1. Transaction documentation (Confidential)
2. Investor reporting (Confidential)

Stress testing
Stress testing was considered in the quantitative analysis by considering scenarios that stress factors, like defaults and Credit-Rating-adjusted recoveries, contributing to sensitivity of Credit Ratings and consider the likelihood of severe collateral losses or impaired cash flows. The impact on the rated instruments is weighted by the assumptions of the likelihood of the events in such scenarios occurring.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of Scope Ratings’ Cash Flow Structured Finance Expected Loss Model Version 1.2, incorporating relevant asset assumptions and taking into account the transaction’s main structural features, such as the instruments’ priority of payments, the instruments’ size and coupons. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodologies used for these Credit Ratings, (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings is (Cash Flow Structured Finance Expected Loss Model Version 1.2), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, third parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Scope Ratings has received a third-party asset due diligence assessment/asset audit. The external due diligence assessment/asset audit was considered when preparing the Credit Ratings and it has no impact on the Credit Ratings.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Sebastian Dietzsch, Senior Director
Person responsible for approval of the Credit Ratings: Antonio Casado, Managing Director
The final Credit Ratings were first released by Scope Ratings on 16 March 2022. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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