Tower Bridge Funding 2026-2 wins provisional AAA rating for UK RMBS class A notes

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Tower Bridge Funding AAA rating

Highlights

Morningstar DBRS assigns provisional (P) AAA (sf) credit rating to Tower Bridge Funding 2026-2 PLC's UK RMBS Class A notes, while not rating Class X and Class Z notes.
The transaction uses 10.1% credit enhancement for Class A notes via subordination of Class Z notes and a liquidity reserve fund for added protection.
An amortising liquidity reserve fund sized at 1.0% of the outstanding Class A balance provides coverage for senior costs, swap payments, and interest shortfalls.

Provisional rating and transaction structure

As reported by Morningstar DBRS, DBRS Ratings Limited assigns a provisional (P) AAA (sf) credit rating to the Class A bond to be issued by Tower Bridge Funding 2026-2 PLC. Morningstar DBRS does not rate the Class X and Class Z notes that are also expected to be issued in the transaction.

The deal is a residential mortgage-backed securities transaction backed by first-lien, owner-occupied and buy-to-let mortgage loans originated by Vida Bank Limited in the UK. The issuer is a bankruptcy-remote special-purpose vehicle, and the transaction follows earlier Tower Bridge Funding issues, including Tower Bridge Funding 2026-1 PLC.

The issuer is expected to issue two tranches of collateralised mortgage-backed securities, the Class A and Class Z notes, to finance the portfolio purchase, alongside one class of noncollateralised Class X notes. The structure initially provides 10.1% credit enhancement to the Class A notes through subordination of the Class Z notes and the liquidity reserve fund.

Liquidity support and market implications

The transaction includes a fixed-to-floating interest rate swap because the mortgage pool is composed of fixed-rate loans that later revert to floating rates. Banco Santander SA is due to act as swap counterparty at closing, while Citibank N.A./London Branch is set to serve as issuer account bank and Barclays Bank PLC as collection account bank.

Liquidity support comes from an amortising liquidity reserve fund sized at 1.0% of the outstanding Class A balance. The reserve is designed to cover senior costs, swap payments and Class A interest shortfalls, while transaction documents also envisage principal borrowing to meet certain senior expenses and payment gaps.

Morningstar DBRS says its analysis considers the capital structure, the mortgage portfolio's credit quality, cash flow resilience under stress scenarios, operational risk mitigants and the UK sovereign rating environment. The agency says the Class A rating addresses the risk of default on interest and principal obligations under the transaction documents, including the higher rate of interest that applies if the notes are not redeemed on the optional redemption date.

Our earlier coverage of the Bridgecrest Lending Auto Securitization Trust 2026-3 (BLAST 2026-3) deal explained how Morningstar DBRS assigned provisional ratings across seven classes of notes backed by subprime auto loan receivables, with total issuance able to upsize if market conditions allow. We highlighted the agency’s focus on capital structure, credit enhancement (including overcollateralization, subordination, reserves and excess spread), and stressed cash-flow assumptions, alongside its assessment of servicing capabilities and the transaction’s legal framework.

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