Press Release|RMBS

KBRA Maintains Watch Developing and Watch Downgrade Placements on Five Kinbane 2022-RPL 1 DAC Ratings

15 May 2024   |   Dublin


DUBLIN (15 May 2024) – KBRA Europe (KBRA) maintains its Watch Developing Placements on the ratings for Class B, Class C, and Class D and maintains its Watch Downgrade Placements on the ratings for Class E and Class F notes of Kinbane 2022-RPL 1 DAC (Issuer) as initially placed on 15 February 2024 following notification that the Administrator, Pepper Finance Corporation (Ireland) DAC (Pepper), had identified an error in its mortgage repayment process. The error relates to monthly mortgage repayments, as set by the Administrator, not increasing according to changes in the European Central Bank (ECB) Rate for certain mortgages held by the issuer. The notification included an estimate that, as of 31 December 2023, the aggregate unbilled amount comprises €3.3 million which now stands updated to c. €4.0 million as of date of this press release. Since the initial Watch Placement, KBRA has held update calls with Pepper on the progress of their identification and remediation of this error. Pepper has now updated the number of affected loans since its initial notification to 1,245 loans (25% of the portfolio by number of loans) which include 130 redeemed loans. Pepper have completed the remediation of 879 loans so far with the final 236 loans in the process of being remedied. Pepper expects to conclude the remediation process over the next four to six weeks. Because a number of loans remain to be remediated and the timeframe for such remediations, KBRA expects the actual aggregate notional loss amount to the Issuer to be higher than the unbilled amount estimated by Pepper to date.

Pepper continue to offer a range of options to the impacted borrowers before the correct monthly repayment terms are billed.

KBRA continues to hold dialogue with Pepper to obtain additional information in order to further assess the potential impact of the error on the rated classes. The interest payments on Class C, Class D, Class E and Class F as of the last interest payment date (25 April 2024) have been deferred due to insufficient funds. Previously deferred interest payments to Class B have since been recovered which excludes the Net WAC Additional Amounts. KBRA will seek to resolve these Watch Placements within 90 days. In resolving the Watch Placements, KBRA expects to consider additional information from its dialogue with the Administrator, an updated assessment of asset and liability performance, and an evaluation of the magnitude of deferrals and the potential for permanent impairment.

As of the end of Q4 2023, Pepper service over €23 billion of assets in Ireland with around €18 billion of residential mortgages; over €10 billion of residential mortgages serviced are in securitized portfolios. Pepper thus service over 11% of the Irish residential mortgages outstanding.

KBRA maintains outstanding ratings on seven other transactions where Pepper acts as a servicer, six of which have published ratings and are listed below. Each of these transactions have meaningful proportions of loans paying interest linked to the ECB rate. Pepper have identified relatively fewer affected loans in other transactions (listed below) on account of the error. KBRA does not currently expect the following transactions to be affected meaningfully on account of the small numbers of error affected loans.

  • Shamrock Residential 2022-2 DAC – 17 loans (0.5% of the portfolio by number of loans) (c. 62% serviced by Pepper)
  • Primrose Residential 2022-1 DAC – 11 loans (0.5% of the portfolio by number of loans) (c. 62% serviced by Pepper)
  • Jamestown Residential 2021-1 DAC – 34 loans (1.6% of the portfolio by number of loans) (100% serviced by Pepper)
  • Summerhill Residential 2021-1 DAC – 83 loans (5.3% of the portfolio by number of loans) (100% serviced by Pepper)
  • Glenbeigh 2 Issuer 2021-2 DAC – 17 loans (1.5% of the portfolio by number of loans) (100% serviced by Pepper)
  • Banna RMBS DAC – No errors (100% serviced by Pepper)

To access rating and relevant documents, click here.

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