Castell 2025-1 notes see Class X1 upgrade in Morningstar DBRS review

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Castell 2025-1 X1 upgrade

Highlights

Morningstar DBRS upgraded Castell 2025-1 Class X1 Notes to AA (sf) from BB (high) (sf) and affirmed all other classes following its annual review.
As of 31 March 2026, loans two to three months in arrears rose to 0.6% and loans over three months in arrears increased to 1.3%, though cumulative losses remain at 0.0%.
Probability of default for the underlying portfolio increases to 5.3% (from 4.4%), loss given default declines to 46.7% (from 49.7%), and the liquidity reserve fund totals about GBP 2.7 million.

Annual review and rating actions

As reported by Morningstar DBRS, DBRS Ratings Limited confirmed the Class A Notes at AAA (sf), the Class B Notes at AA (sf), the Class C Notes at A (sf), the Class D Notes at BBB (sf), the Class E Notes at BB (sf), and the Class F Notes at BB (low) (sf). The agency upgraded the Class X1 Notes to AA (sf) from BB (high) (sf).

The rating actions follow the annual review of the transaction and are based on portfolio performance, including delinquencies, defaults and losses as of 31 March 2026, corresponding to the April 2026 payment date. Morningstar DBRS also assessed the portfolio's probability of default, loss given default and expected loss assumptions on the remaining receivables, alongside the available credit enhancement supporting each class of notes.

The transaction securitises second-lien mortgage loans backed by owner-occupied properties and originated by UK Mortgage Lending Limited, formerly Optimum Credit Limited. The Cardiff-based lender provides second charge mortgages to homeowners in England, Wales and Scotland, while Pepper UK Limited serves as the primary and special servicer of the portfolio.

Portfolio trends and credit support

As of 31 March 2026, loans two to three months in arrears account for 0.6% of the outstanding portfolio balance, while loans more than three months in arrears represent 1.3%. At closing, those figures stood at 0.3% and 0.3%, respectively, and cumulative losses remain at 0.0%.

Morningstar DBRS says its loan-by-loan analysis of the remaining receivables led it to update its base-case assumptions at the B (sf) rating level. The probability of default rises to 5.3% from 4.4% at closing, while loss given default falls to 46.7% from 49.7%.

Credit enhancement for the Class A to F Notes has increased since closing as of the April 2026 payment date. The structure also includes a liquidity reserve fund that covers senior fees, swap payments, and interest on the Class A and Class B Notes, and it stands at its target level of about GBP 2.7 million, equal to 1.0% of the outstanding Class A and Class B balances before payments. Citibank N.A., London Branch acts as the account bank for the transaction.

Our earlier article on Nashville and Davidson County’s water and sewer system highlighted how the utility’s long-term credit profile is supported by solid operating performance and a growing service area. We also noted that a $4.1 billion five-year capital improvement plan—expected to rely heavily on debt—could pressure leverage, making rate management and execution of the investment program key to maintaining credit quality.

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