Scope Ratings published the final version of its Residential Mortgage-Backed Securities Rating Methodology on 17 July 2024. Following the publication, Scope Ratings UK Limited places ratings under review for developing outcome.

Rating action

Scope Ratings UK Limited (Scope) has placed under review for developing outcome the ratings of the following instruments:

North Dock No.1 Limited – Class B1 notes (ISIN: XS2134388326), GBP 160,000,000 outstanding, current rating: A+_SF

North Dock No.1 Limited – Class B2 notes (ISIN: XS2134388912), GBP 160,000,000 outstanding, current rating: A+_SF

Rating rationale

The rating actions follow the publication of Scope’s new Residential Mortgage-Backed Securities Rating Methodology on 17 July 2024. The methodology describes Scope’s approach to rating European residential mortgage-backed securities whose collateral consists of granular portfolios of standard mortgage loans to purchase, refinance or refurbish a residential property.

The methodology presents the analytical framework and key concepts to be applied when rating RMBS, and for each country, the methodology is complemented by a Country Addendum that provides additional analytical insights. Scope has published country addendums for the following countries: Spain, Italy, France, United Kingdom.

The new methodology introduced a more top-down approach: the definition of the default rate distribution is modified from Scope’s General Structured Finance Rating Methodology. Based on the General Structured Finance Rating Methodology, the parameters of the default distribution (Mean, CoV) are typically defined using both (i) the historical data provided by the originator and servicers and (ii) the comparison with the performance and assumptions of similar transactions, pools. In the RMBS methodology Scope has a more systematic approach to the definition of the default distribution with the exception of the ‘Origination Adjustment’ which is embedding the analysts’ view.

Furthermore, the new methodology introduces a stochastic recovery rate distribution framework: under the previous approach, the recovery assumptions were rating conditional. In the RMBS methodology we replaced the rating-conditional recovery rates by a recovery rate distribution which is fully dependent on the default rate distribution. This allows us to keep the spirit of the previous approach (lowering recovery rate for higher ratings) in a simplified framework.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodologies used for these Credit Ratings, (Residential Mortgage-Backed Securities Rating Methodology, 17 July 2024; General Structured Finance Rating Methodology, 6 March 2024; Counterparty Risk Methodology, 10 July 2024), are available on 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/uk-regulation. 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 UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Ratings are EU-endorsed.
Lead analyst: Adam Plajner, Associate Director
Person responsible for approval of the Credit Ratings: Paula Lichtensztein, Senior Representative
The Credit Ratings were first released by Scope Ratings on 27 March 2020. The Credit Ratings were last updated on 24 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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.