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Eurosail-NL 2007-2 Dutch RMBS Ratings Affirmed Following Action On Counterparty
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Eurosail-NL 2007-2 Dutch RMBS Ratings Affirmed Following Action On Counterparty

Overview

  • We reviewed Eurosail-NL 2007-2 following the downgrade of Credit Suisse International.
  • Following our review, we affirmed our ratings on all classes of notes.
  • Eurosail-NL 2007-2 is backed by a pool of nonconforming residential mortgage loans originated by ELQ Hypotheken.

PARIS (S&P Global Ratings) Jan. 31, 2023--S&P Global Ratings today affirmed its credit ratings on Eurosail-NL 2007-2 B.V.'s class A, M, B, C, and D1 notes.

Today's affirmations follow our review of the transaction following the Nov. 1, 2022, downgrade of Credit Suisse International (see "Credit Suisse AG Downgraded To 'A-/A-2' On Execution And Franchise Risks Under Restructuring Plan; Outlook Stable"). They also reflect our full analysis of the most recent transaction information that we have received and the transaction's structural features.

Under our counterparty criteria, our ratings on the notes are potentially constrained by our resolution counterparty rating (RCR) on Credit Suisse International as swap counterparty ('A/'A-1'). For the notes to be delinked and achieve a rating higher than the RCR on Credit Suisse International, we have applied a basis risk stress in our cash flow analysis.

After applying our global residential loans criteria, the overall effect in our credit analysis results in a decrease in the weighted-average foreclosure frequency (WAFF) and an increase the weighted-average loss severity (WALS). The WAFF has decreased mainly due to the lower level of arrears. Our WALS assumptions have increased due to the higher indexed loan-to-value (CLTV).

Credit Analysis Results
Rating level WAFF (%) WALS (%)
AAA 31.13 46.03
AA 23.61 39.96
A 19.50 29.93
BBB 15.59 24.23
BB 10.91 20.23
B 9.80 16.58
WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

As of September 30, 2022, total arrears represent 4.4%, including 0.9% that are more than 90 days. There are currently no loans in arrears of more than six months.

The available credit enhancement has increased for all classes of notes in this transaction since our previous review.

The reserve fund currently stands at 31% of its target level.

The class A and M notes pass at the 'AA+ (sf)' and 'AA- (sf)' ratings, respectively, in our cash flow analysis without the swap when we apply a basis risk stress. Therefore, we affirmed our 'AA+ (sf)' and 'AA- (sf)' ratings on the class A and M notes, and delinked them from the RCR on the basis swap provider. Our analysis also indicates that the available credit enhancement for the class A and M notes is commensurate with higher ratings than those currently assigned. However, our ratings on the class A and M notes take into account the assets' nonconforming nature and the elevated Dutch inflation, which is overall credit negative for all borrowers. Inevitably some borrowers will be more negatively affected than others, and to the extent inflationary pressures materialize more quickly or more severely than currently expected, risks may emerge. Furthermore, cost of living pressures will likely affect some borrowers.

The available credit enhancement for the class B notes continues to be commensurate with the currently assigned rating under the revised cash flow assumptions. We therefore affirmed our 'BB (sf)' rating on the class B notes.

Our analysis also indicates that the available credit enhancement for the class C notes is commensurate with the currently assigned rating. Considering the slight increase in credit enhancement and the stable collateral performance, these notes can still withstand a steady-state scenario without favorable conditions, reflected in a 'B- (sf)' rating in accordance with our 'CCC' criteria (see "Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-’, And ‘CC’ Ratings," published on Oct. 1, 2012). We therefore affirmed our 'B- (sf)' rating on this class of notes.

Given the limited available credit enhancement and the cash reserve fund's current level, the payment of interest and principal on the class D1 notes still depends on favorable business, financial, and economic conditions, in our view. Following the application of our 'CCC' criteria, we affirmed our 'CCC+ (sf)' rating on this class of notes.

Our credit and cash flow analysis and related assumptions consider the transaction's ability to withstand the potential repercussions of higher inflation and the broader current economic environment.

Our conclusions on operational, and legal risk analysis remain unchanged since closing. Therefore, no rating cap applies to this transaction.

Eurosail-NL 2007-2 is a Dutch RMBS transaction backed by a pool of nonconforming Dutch residential mortgages originated by ELQ Hypotheken N.V.

Related Criteria

Related Research

Primary Credit Analyst:Maxime Pontois, Paris (33) 1-4075-2538;
maxime.pontois@spglobal.com

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