Vlaamse Huisvertingsmaatschappij ( VHM ) Compartment SKV-1 of EVE - Eerste Vlaamse Effectisering N.V. (Openbare V.B.S. naar Belgisch recht)

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1 DCR European New Financing Report London Chicago New York Hong Kong Vlaamse Huisvertingsmaatschappij ( VHM ) Compartment SKV-1 of EVE - Eerste Vlaamse Effectisering N.V. (Openbare V.B.S. naar Belgisch recht) Euro 324,000,000 Mortgage Backed FRN due 2026 rated AAA Contacts Rob Marshall, Associate Director marshall@dcrco.com Hervé Nédellec, Analyst nedellec@dcrco.com Originator Social Credit Institutions SKVs Servicer Social Credit Institutions SKVs Swap Counterparty Nationsbank Financial Products. (Triple A rated entity) GIC Provider KBC Bank Back-up Servicer Vlaamse Huisvertingsmaatschappij ( VHM ) Key Credit Issues Underlying collateral is a pool of residential mortgages originated by twelve Flemish social credit institutions. Noteholders benefit from a 20% pool-wide guarantee provided by the Flemish government to the Issuer. Social credit loans are secured by mortgages on properties of moderately low value concentrated in the region of Flanders. The Flemish housing market has historically exhibited stable characteristics. Some borrowers have low income or were unemployed at time of origination. Many of these cases represent ex-miners, who receive significant support from the Flemish government Portfolio is extremely well seasoned, and historic losses incurred by the Originators on their own portfolios have been very low. The transaction is structured under Belgian laws which have been designed to facilitate the securitisation of financial assets. Interest rate risks are hedged through a Swap Facility provided by NationsBank Financial Products ( NFP ) Transaction Summary DCR Ratings Class Amount Rating Maturity Floating Rate Notes Euro 324,000,000 AAA Due 2026 Eerste Vlaamse Effectisering N.V. Operbare V.B.S. Naar Belgisch Recht ( Eve or the Issuer ), an Investment Company under Belgian law will issue on the closing date Euro 324 million mortgage-backed floating rate notes. Arranger Fredell & Co Lead Managers CIBC Bacob Bank/ Artesia Bank Information herein was obtained from sources believed to be accurate and reliable; however, we do not guarantee the accuracy, adequacy or completeness of any information and are not responsible for any errors or omissions or for the results obtained from the use of such information. Issuers of securities rated by Duff & Phelps Credit Rating Co. have paid a credit rating fee, based on the amount and type of securities issued. Duff & Phelps Credit Rating Co. ratings are opinions on credit quality only and are not recommendations to buy or sell any security. Copyright 1999 All rights reserved. Contents may be used by news media with credit to The Issuer is incorporated under Belgian law, in the form of a Vennootschap voor Belegging in Schuldvorderingen ( VBS ). A VBS is regulated in accordance with the Undertaking for Commercial Investments Law ( UCITs ) and is licensed by the Belgian Banking and Finance Commission. As such, the activities of the Issuer are subject to strict rules for the protection of investors. The Euro denominated floating rate notes will be payable quarterly in arrear based on Euribor plus a margin of 22 basis points. The proceeds of the Issue will be used to pay the initial purchase price for a portfolio of residential mortgage loans advanced by eleven originators based in the Flanders region of Belgium (together, the Portfolio ). Each of the Originators is a sociale kredietvennootschap (social credit institution or SKV ) which grants mortgage loans for the purchase or construction of single family housing in Bel-

2 Transaction Structure GIC Provider EVE SKV 1 Issue Compartment EURIBOR quarterly payment Investors Borrowers BEF monthly payment EVE Collection A/c BEF monthly payment EURIBOR quarterly payment Swap Counterparty Loan Origination Quarterly Deferred Purchase Price and Servicing Fees SKVs Servicers Quarterly Fees VHM Administrator gium. Prior to the transaction taking place, and an act of the Belgian Parliament passed on 23 rd February 1999, each of the SKVs had the benefit of a guarantee (the Original Guarantee ) on its mortgage loans. Following the Act of this date, the Original Guarantee as it relates to loans in the Portfolio will be replaced by a new guarantee (the EVE Guarantee ). Details of the EVE Guarantee appear below. Belgian residential mortgage market Economic Outlook DCR has assigned a AA+ rating to the Kingdom of Belgium. The country is part of the first wave of participants in European Monetary Union. As one of the first industrialised countries of Europe, it has a strong manufacturing base and a developed technology and services economy. Belgium s geographical location has contributed to its becoming a hub for foreign trade in Europe, and the political centre of Euroland. Industry is concentrated in the Flemish area of the country, which accounts for 62% of Belgian gross domestic product and approximately 70% of the total exports. The economy of Flanders is well diversified and has enjoyed stable and sustained growth. Key industries for Flanders as compared to the whole of Belgium appear in Table 1 below. As services and high-technology industries advance their role in the economy, this contributes to diluting the historic cyclicality of many of Flanders traditional sectors of commerce. Sector Flanders % total employment Belgium % total employment Industry 24.92% 19.96% Trade/Repair 12.92% 12.66% Education 10.32% 10.32% Health/Social 10.22% 10.32% Services/Rent 8.27% 8.79% Construction 6.37% 5.82% Transport/Traffic 7.61% 7.27% Public Administration 7.40% 11.38% Metal/Steel 3.41% 3.12% Food/Beverage 3.56% 2.82% Finance 2.66% 4.08% Agriculture 1.39% 0.91% Others 0.94% 2.55% Total sectors 100% 100% Source: Euridyce Table 1 2

3 Table 2 - Belgium Unemployment and Inflation rates compared to Euroland Unemployment Inflation Belgium 10.0% 9.9% 9.7% 9.2% 8.8% Euroland 11.7% 11.4% 11.6% 11.6% 11.1% Belgium 2.4% 1.5% 1.8% 1.5% 0.9% Euroland NA NA 2.2% 1.6% 1.1% Source: National Bank of Belgium The level of unemployment in Belgium has been steadily decreasing over recent years and is now at its lowest level since 1983, representing one of the lowest unemployment rates within Euroland (see table 2 ). Belgium has managed to keep consumer price inflation under control at below 2% per annum. Recent figures show an annualised inflation rate below 1%. Belgian Housing Market The Belgian mortgage lending market has historically sustained a very low level of losses. Belgium has one of the highest proportions of owner-occupied properties in Europe with a rate approaching 70%, compared to France and Germany with 54% and 40% respectively. The Belgian government has actively encouraged home ownership with a number of initiatives, including its support of the SKVs which originated the EVE Portfolio. The following key factors, inter alia, have contributed to the low loss incidence to date : Stable growth trend in house prices (see graph 1 below), especially in Flanders with the result of a long term improvement in borrower equity. A high cultural propensity to pay amongst Belgian borrowers An extremely strong system of government social security made available to borrowers who become unemployed or who otherwise have a low income Table 3 - Unemployment at December 1997 Flanders As % of Belgium Belgium Men 94, % 248,289 Women 139, % 317,578 Total 233, % 565,867 Source: Euridyce A low level of individual indebtedness in respect of consumer credit, and high levels of retail deposits. Since the late 1970s the market has enjoyed substantial growth as is shown in Graph 1 below. One period of decline is apparent in the more volatile markets of Brussels in the early 1980s with a subsequent period of stabilisation. Graph 1 - House price index for Belgium (Base Year 1997) 100% 90% 80% Brussels Prices Flanders Prices Walloon Prices 70% 60% 50% 40% 30% 20% 10% Source: Stadim/CGER/Confédération Royale des Notaires 0%

4 The steeper increases in house prices over the early 1990s are of potential concern, although they would seem to be sustainable in the context of levels of underlying GDP growth and retail price inflation, as well as a relatively stable supply demand dynamic. DCR s residential mortgage model is designed to detect unsustainable levels of house price inflation, and will adjust loss severity if necessary. Belgian social housing financing As a result of State reform, the responsibility for housing policy was transferred to the regions. The former State owned Belgian bank CGER-ASLK had several duties of public administration, such as the financing of social housing. One of the channels through which CGER-ASLK realised these obligations was a network of SKVs, where each SKV had to be approved and regulated by CGER-ALSK. Vlaamse Huisvestingsmaatschappij ( VHM ) is a company owned by the Flemish region and the five Flemish provinces. VHM, established in 1988 by a decree of the Flemish Government, took over the role of CGER-ASLK and became responsible for the administration and funding of the SKVs. The decree of July 24, 1997 gives VHM the exclusive right (and obligation) to arrange funding for government guaranteed mortgage loans through the SKV network. As such, VHM has more recently decided to implement a securitisation programme for mortgage loans granted by SKVs as a mean to fulfil their funding needs in the future. In addition to this special financing role, VHM s other objectives are to develop social housing by the acquisition, construction and refurbishment of the real estate in order to provide sufficient supply of social dwellings, and to guide, support and control the activities of Social Credit Institutions. In order to benefit from the guarantee provided by the Flemish government each SKV must fulfil certain conditions as stated in a decree of the Flemish government (See Offering Circular for terms and conditions). The decree also grants SKVs advantageous fiscal status including a lower rate of income tax and exemption from withholding tax on interest received. These benefits will also apply to the Issuer where relevant. In order to continue to enjoy these benefits, the SKVs must be closely monitored by VHM, and must comply with certain criteria, which relate both to the credit quality of loan portfolios, as well as to key financial ratios. This supervision is a direct result of the government s willingness to maintain the availability of social credit; VHM has the power to require social credit institutions to be recapitalised should their condition begin to deteriorate. DCR draws a level of comfort from the Flemish government s commitment to its social housing programme. Flemish Government Guarantee The EVE Guarantee is available to cover losses of up to 20% of the outstanding principal balance at any time. Cover is available only for amounts unpaid after enforcement of the mortgage and any additional security. The Guarantee does not cover prepayment, default penalties or enforcement costs. It is important to note that every loan in the portfolio has been approved for Guarantee purposes either by VHM or CGER-ALSK, and as such the protection remains valid notwithstanding the insolvency of any or all of the Originators, or negligence by these companies in performing their administration obligations. Note also that the Issuer has a direct right to amounts payable under the guarantee as a result of a government decree of 23 rd February. The EVE Guarantee serves as a second loss facility once portfolio level credit enhancement has been exhausted. Excess spread and the Originators right to receive Deferred Purchase Price act as the first loss (see below). A potential loss must be notified once a borrower is 90 days in arrears. The SKV is required to notify the Flemish Minister of Finance and Budget in writing within a 30 day period, providing details on the identity of the borrower, the relevant land registry for the property and the amount of principal outstanding on the loans at that time. The relevant SKV, or VHM as Backup Administrator, would then continue with the foreclosure process in accordance with standard procedures. When the enforcement and sale process is complete, and a loss has been incurred, the amount of such loss is notified to the Minister. Payment of the Guarantee in respect of losses of principal and accrued interest will then be made to the Issuer within 30 days. Characteristics of the mortgage portfolio The mortgage loans are secured on single-family homes and apartments. The loan amount and the availability of the Flemish government guarantee have allowed borrowers to effectively take a high loan-to-value mortgage at interest rates applicable to a lower risk loan. Key characteristics are as follows: Partly government guaranteed Low cost property Up to 100% Loan-To-Value No subsidies No income limit The loans were originated during the period by 16 different SKVs, and are all located in Flanders. 4

5 Fixed rate mortgages represent the majority of the portfolio. They are fully amortising loans with a maximum maturity between 20 and 25 years. Three types of adjustable rate loans are included in the portfolio; rates are reset twice, at years 5 and 10, and can move either a) downwards only, by a maximum of 3%, b) upwards or downwards, by a maximum of 3% or c) upwards or downwards by a maximum of 5%. The potential interest rate risks incurred at reset will be mitigated through the Interest Rate Swap provided by Nationsbank Financial Products. DCR views a full term fixed rate as a positive credit aspect, while 5 year adjustable rate loans can cause a borrower payment shock in a high interest rate environment. These factors have been incorporated into DCR s credit analysis of the portfolio. Belgian mortgage banks have historically given interest rate rebates to their clients. Borrowers pay the full rate on the loan but, subject to fulfilling certain conditions, are entitled to receive a percentage back as rebate. Certain loans in the portfolio currently enjoy rebates from the Originators, however, all cashflows have been analysed net of rebates. The portfolio also contains a significant proportion of Miner s loans, where borrowers who were employed in the now defunct mining industry would pay a subsidised fixed interest rate on their loans with the remainder at a market rate paid by the Flemish government. The effects of the implied industry concentration have decreased over time, as individuals have found new employment. In the meantime, the extremely low interest rate (maximum 2.5%) and the high levels of government subsidy have resulted in excellent performance by the Miners loan portfolio. A significant level of seasoning has demonstrated the good performance of the entire portfolio, as well as the Miners loans. This represents a key strength of the transaction. Losses incurred by the SKVs have remained very low throughout their trading history. However, we should note that the Flemish housing market has not suffered a severe recession over the period of this history. The Social Credit Institutions will service the loans. However VHM centrally monitors the procedures in terms of servicing and origination of the loans. The servicing will consist on the collection of the payments of interest and principal, as well as the chasing of loans in arrears and the enforcement of the loans when necessary. An extra fee of 1 bp will be paid to the servicer for forced collection. The SKVs have a reasonable experience in originating and servicing loans. DCR has appraised the servicing guidelines and procedures, and the monitoring systems. On the basis of this Due Diligence, we believe SKVs provide a satisfying servicing for the context of the transaction. In some events where a SKV does not fulfilled its obligations under the servicing agreement or if the SKV losses its licence, VHM will step-up as a back-up servicer. Structure The transaction contemplates the sale of a portfolio of mortgage loans into one compartment SKV-1 of the VBS, constituting the first issue compartment of the Issuer. Subsequent issues through the VBS will require Rating Agency approval. The compartment SKV-1 will be further split into 11 subportfolios each corresponding to a pool of loans originated by a particular SKV. Further compartments will purchase future originations, funded by drawings made under a revolving credit facility (the Warehousing Facility ) provided to the Issuer by VHM. These future originations will be transferred into an issuing compartment corresponding to the same shareholder. Such sales will also require Rating Agency approval. It is important to note that each of the compartments within EVE, and each sub-portfolio corresponding to a single Originator are entirely separate and not cross-collateralise other compartments or sub-portfolios. It is conceivable, therefore, that credit enhancement for a single sub-portfolio could be exhausted while other sub-portfolios within the same issue compartment continue to perform and provide returns to the relevant Originators. This formed a key concern in DCR s credit analysis, but given i. the extent of credit enhancement available at the AAA level; ii. the relative homogeneity of the assets, and the similar credit characteristics of each sub-portfolio; iii. the large of size of each and every sub-portfolio; and iv. the extent of the EVE Guarantee, DCR is of the opinion that the lack of cross-collateralisation at the sub-portfolio level does not present an additional risk to Noteholders at the AAA level. The Notes and the coupons constitute a direct and unconditional obligation of the Issuer secured by a pledge agreement between the Issuer, the shareholders, the Management Company and the Bond Agent. Certain legal concerns A loan Sale Agreement will be entered into between the Issuer and each of its shareholders i.e. the SKVs, pursuant to which it will acquire residential mortgage loans originated by the shareholders. A risk exists in relation to the transfer of loans by the shareholder 5

6 Originators. Although the directors of each shareholder will warrant as to the solvency of their company at the time of the sale, no solvency verification exercise is to be completed. If it should become apparent during the following 6 months that the company was in fact insolvent at the time of the transfer, then the sale is capable of being set aside by a receiver in certain circumstances. In the case of such an event, the loans would form part of the bankruptcy estate of the relevant shareholder, and the Issuer would rank as an unsecured creditor. DCR has assessed this risk in the context of the strict regulation of such credit institutions in Belgium, and the highly public nature of the sale of loans to the Issuer by the shareholders. Partially drawn loan facilities will be included in the initial portfolio of mortgage loans to be transferred to the Issuer, and such facilities present certain risks in the event of an Originator insolvency. These facilities will be sold for a price based upon the drawn amount of the loan at that time. The obligation to fund further advances under the facility remains with the relevant Originator. However, should such Originator become insolvent prior to making a further advance, or otherwise unable to fund an advance, the borrower may be able to make a claim for damages against the Originator for breach of contract and set off amounts due to him against payments under the outstanding advance owned by the Issuer. Any such set-off may reduce the amount owing by a borrower to the Issuer. No notification of the assignment of loans will be made to borrowers. As such, the assignment will not be perfected at closing. Notarised deeds which are held for each property at a central registry evidence the charge created for the benefit of the Originator, and mitigate the risk that additional senior or pari passu charges will be registered against the property. In the event of a significant weakening in the financial condition of any Originator, the Issuer can require notice to be given to borrowers, the assignment thereby being perfected. on the fixed leg of the swap. Spread will be available on a sub-portfolio basis (not cross-collateralised) to cover losses within that sub-portfolio. Prepayment or default of the higher rate loans would reduce the levels of excess spread available; this has been factored into DCR s credit analysis. Loans will be sold to the Issuer at a discount of 6.6% to their par value. This retained equity interest of the SKVs provides a second loss facility to the transaction, and also acts as an incentive to provide a high standard of administration both pre and post-default. Note however, that scheduled and unscheduled repayments of principal will be paid pro rata to the Issuer and the Originator. As such this 6.6% subordination will amortise over the life of the transaction. DCR has therefore considered the effects of defaults occurring later in the life of the Notes, following a period of high prepayments. As described above the Flemish government provides the EVE Guarantee on the loans originated by the SKVs. This Guarantee, granted directly to the Issuer, provides a cross collateralised benefit of up to 20% of the outstanding pool balance. To meet potential shortfalls of interest in a high delinquency environment, the Issuer has the ability to use principal receipts (from mostly amortising loans) to meet interest payments on the Notes. The Issuer will enter a Guaranteed Investment Contract with KBC Bank to mitigate reinvestment risk. The GIC interest rate will be based on Euribor less 0.5% on an annual basis. Intra-period principal receipts and prepayment penalties will be held in this account as will surplus receipts which have not been used to service the Notes and the sundry expenses of the Issuer. In the event of a downgrading of the GIC provider, which could ultimately affect payments on the Notes, a suitable rated entity will be substituted. Credit analysis DCR has analysed the EVE portfolio using the DCR Mortgage Model for Belgium. The assumptions used in the analysis reflect the strong historic performances of the Belgian residential mortgage sector, as well as the very low loss experience of the SKVs. Over the last 6 years, actual losses reached a maximum of 3.9 basis points in Average losses over the period were approximately 2 basis points. The transaction will benefit from three key sources of credit enhancement. The weighted average coupon on the portfolio is approximately 6.98%. This provides an excess spread of approximately 190 basis points over the rate payable Nationsbank Financial Products, a Triple-A rated subsidiary of Nationsbank N.A. will provide an Interest Rate Swap. Under the Swap agreement, the Issuer will pay NFP a fixed rate (circa 5%) payment on a monthly basis and will receive quarterly 3-month Euribor matched to the rate applicable to the Notes. To the extent redemptions and prepayments occur on the mortgages, the notional amount of the Swap will be reduced. While prepayments remain within a band of 0% to 20%, break costs for such reductions will be carried by the Swap counterparty. Should prepayments exceed 20%, the Swap will not be unwound to match the outstanding principal balance on the loans, and excess principal amounts will be held in the GIC account to earn Euribor 50bps. Prepayment penalties, enforceable under Flemish law, will provide the Issuer with additional funds to meet break costs. DCR has incorporated the potential shortfall arising in a low Euribor environment into its credit analysis of the cashflows. DCR 6

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