DBRS Ratings Limited (DBRS) upgraded its rating on the Class B Notes issued by E-CARAT 6 plc to AAA (sf) from AA (sf).
The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults, as of the February 2019 payment date.
-- Updated probability of default (PD), loss given default (LGD) and expected loss assumptions for the remaining collateral pool.
-- Current available credit enhancement (CE) for the Class B Notes to cover the expected losses at the AAA (sf) rating level.
The rating on the Class B Notes addresses the timely payment of interest and ultimate payment of principal by the legal maturity date.
E-CARAT 6 plc is a securitisation of receivables related to motor vehicle loan contracts originated and serviced by Vauxhall Finance plc (formerly GMAC (UK) plc). The receivables were granted to private and commercial customers for the purchase of used or new vehicles. Part of the underlying loan contracts are personal contract purchases with a final balloon payment that envisages the borrower’s option to turn in the purchased vehicle at contract maturity as an alternative to repaying the final balloon.
The portfolio is performing within DBRS’s initial expectations. As of the February 2019 payment date, loans more than 90 days delinquent as a percentage of the outstanding portfolio collateral balance were 0.5%, up from 0.2% as of February 2018. The gross cumulative defaulted loans (including voluntarily terminated receivables), as a percentage of the original portfolio balance, stood at 2.9%, up from 1.3% one year ago.
DBRS conducted a loan-by-loan analysis on the outstanding pool and updated its PD and LGD assumptions on the remaining collateral pool to 2.6% and 52.6%, respectively. Residual Value (RV) loss of the current pool is 5.3% at the AAA (sf) rating level.
As of February 2019, the CE available to the Class B Notes was 45.9%, up from 14.5% one year ago. The CE consists of the overcollateralisation provided by the outstanding collateral portfolio.
The transaction benefits from a liquidity reserve equal to 1.2% of the principal outstanding balance of the rated notes and amortises to a floor of GBP 200,000. The liquidity reserve provides liquidity support and is available to cover senior fees, expenses and any interest shortfall on the Class B Notes. The liquidity reserve is currently at its GBP 300,000 target amount.
Elavon Financial Services DAC, U.K. Branch (Elavon UK) is the Account Bank for the transaction. Based on the reference private rating of the Account Bank, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS considers the risk arising from the exposure to Elavon UK to be consistent with the rating assigned to the Class B Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
Royal Bank of Canada, London branch is the Swap Counterparty for the transaction. DBRS’s private rating of the Swap Counterparty is consistent with the First Rating Threshold as defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/333487/rating-sovereign-governments
The sources of data and information used for this rating include investors reports provided by U.S. Bank Trustees Limited and loan-by-loan data from Vauxhall Finance plc.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 25 February 2019 when DBRS discontinued the rating on the Class A Notes because of repayment in full. Prior to that, on 22 March 2018 DBRS confirmed its rating on the Class A Notes at AAA (sf) and upgraded its rating on the Class B Notes to AA (sf) from AA (low) (sf).
The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the base case):
-- The base case PD and LGD of the current pool are 2.6% and 52.6%, respectively.
-- The base case RV Loss of the current pool is 5.3% at the AAA (sf) rating level.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD, LGD and RV Loss increase by a certain percentage over the base case assumption. For example, if the PD and LGD increase by 50%, the rating of the Class B Notes would be expected to remain at AAA (sf), assuming no change in the RV Loss. If the RV Loss increases by 50%, the rating for the Class B Notes would be expected to remain at AAA (sf), assuming no change in the PD and LGD. Furthermore, if the PD, LGD and RV Loss increase by 50%, the rating of the Class B Notes would be expected to remain at AAA (sf).
Class B Notes Risk Sensitivity:
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in RV Loss, expected rating of AAA (sf)
-- 50% increase in RV Loss, expected rating of AAA (sf)
-- 25% increase in RV Loss, 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in RV Loss, 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in RV Loss, 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in RV Loss, 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 March 2016
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.