DBRS Ratings Limited (DBRS) confirmed its rating of the Class A Notes issued by Temese Funding 2 plc (the Issuer) at AAA (sf).
The rating addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the June 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level.
-- No revolving termination events have occurred.
The Issuer is a securitisation of equipment lease receivables originated in the United Kingdom by Investec Asset Finance Plc (IAF) and its affiliate CF Corporate Finance, both fully owned by Investec Bank Plc. The portfolio is serviced by IAF. The transaction closed in November 2014 and was restructured in May 2017. The transaction is currently in its revolving period, which is scheduled to end in May 2021.
As of June 2019, loans that were two- to three-months in arrears represented 0.3% of the outstanding portfolio balance, up from 0.1% in June 2018. The 90+ delinquency ratio was 0.1%, down from 0.2% in June 2018. The cumulative default ratio was 3.2%.
During the revolving period, the Issuer may purchase additional receivables, which could result in deterioration of the portfolio. DBRS has maintained its base case cumulative net loss assumption at 2.8%, based on the worst-case portfolio composition.
Credit enhancement to the Class A Notes is 21.3% and has remained stable since the May 2017 restructure due to the revolving period. Credit enhancement is provided by subordination of the junior notes and the cash reserve.
The cash reserve is currently funded to its target level of GBP 8.3 million and covers senior fees, interest shortfall and principal losses (via the principal deficiency ledger) on the Class A Notes. The transaction also benefits from an amortising liquidity reserve, currently funded to its target level of GBP 8.3 million. The liquidity reserve is available to cover senior fees and interest shortfall on the Class A Notes.
HSBC Bank plc acts as the account bank for the transaction. Based on the DBRS private rating of HSBC Bank plc, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.
The transaction structure was analysed in Intex DealMaker.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the rating is the “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.
An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.
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: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for this rating include investor reports and loan-level data provided by Wells Fargo Bank International UC and IAF.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.
At the time of the transaction restructure, 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 purpose 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 8 August 2018, when DBRS confirmed the rating of the Class A Notes at AAA (sf).
The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 4.1% and 68.8%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 November 2014
DBRS Ratings Limited
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Registered and incorporated under the laws of England and Wales: Company No. 7139960.
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
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Operational Risk Assessment for European Structured Finance Originators
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.