Press Release

DBRS Morningstar Confirms Provisional Ratings of Four Colonnade Global 2018 Transactions

Structured Credit
October 25, 2019

DBRS Ratings Limited (DBRS Morningstar) confirmed its provisional ratings on 44 tranches of four unexecuted, unfunded financial guarantees in the Colonnade Global 2018-2, Colonnade Global 2018-3X, Colonnade Programme – Series Global 2018-4 (Colonnade Global 2018-4) and Colonnade Programme – Series Global 2018-5 (Colonnade Global 2018-5) portfolios:

Colonnade Global 2018-2:
--USD 1,102,790,000 Tranche A at AAA (sf)
--USD 21,190,000 Tranche B at AA (high) (sf)
--USD 6,390,000 Tranche C at AA (sf)
--USD 7,330,000 Tranche D at AA (low) (sf)
--USD 20,530,000 Tranche E at A (high) (sf)
--USD 3,590,000 Tranche F at A (sf)
--USD 10,930,000 Tranche G at A (low) (sf)
--USD 20,260,000 Tranche H at BBB (high) (sf)
--USD 3,990,000 Tranche I at BBB (sf)
--USD 6,660,000 Tranche J at BBB (low) (sf)
--USD 19,673,328 Tranche K at BB (high) (sf)

Colonnade Global 2018-3X:
--USD 1,883,210,000 Tranche A at AAA (sf)
--USD 35,630,000 Tranche B at AA (high) (sf)
--USD 12,410,000 Tranche C at AA (sf)
--USD 12,870,000 Tranche D at AA (low) (sf)
--USD 39,080,000 Tranche E at A (high) (sf)
--USD 6,200,000 Tranche F at A (sf)
--USD 18,160,000 Tranche G at A (low) (sf)
--USD 38,850,000 Tranche H at BBB (high) (sf)
--USD 7,350,000 Tranche I at BBB (sf)
--USD 11,490,000 Tranche J at BBB (low) (sf)
--USD 33,600,569 Tranche K at BB (high) (sf)

Colonnade Global 2018-4:
--USD 1,924,410,000 Tranche A at AAA (sf)
--USD 35,110,000 Tranche B at AA (high) (sf)
--USD 12,090,000 Tranche C at AA (sf)
--USD 13,250,000 Tranche D at AA (low) (sf)
--USD 33,250,000 Tranche E at A (high) (sf)
--USD 6,510,000 Tranche F at A (sf)
--USD 18,370,000 Tranche G at A (low) (sf)
--USD 33,480,000 Tranche H at BBB (high) (sf)
--USD 7,670,000 Tranche I at BBB (sf)
--USD 11,160,000 Tranche J at BBB (low) (sf)
--USD 30,281,391 Tranche K at BB (high) (sf)

Colonnade Global 2018-5:
--USD 514,740,000 Tranche A at AAA (sf)
--USD 9,240,000 Tranche B at AA (high) (sf)
--USD 3,180,000 Tranche C at AA (sf)
--USD 3,620,000 Tranche D at AA (low) (sf)
--USD 9,120,000 Tranche E at A (high) (sf)
--USD 1,810,000 Tranche F at A (sf)
--USD 4,990,000 Tranche G at A (low) (sf)
--USD 9,310,000 Tranche H at BBB (high) (sf)
--USD 2,120,000 Tranche I at BBB (sf)
--USD 3,060,000 Tranche J at BBB (low) (sf)
--USD 8,809,997 Tranche K at BB (high) (sf)

Each transaction is a synthetic balance-sheet collateralised loan obligation structured in the form of a financial guarantee (the Guarantee). The tranches are collateralised by a portfolio of corporate loans and credit facilities (the Guaranteed Portfolio) originated by Barclays Bank PLC (Barclays or the Beneficiary). The rated tranches are unfunded, and the senior guarantee remains unexecuted.

The ratings address the likelihood of a loss under the guarantee on the respective tranche resulting from borrower defaults at the legal final maturity dates in 2026 for the four transactions. Borrower default events are limited to failure to pay, bankruptcy and restructuring. The ratings assigned by DBRS Morningstar to each tranche are expected to remain provisional until the senior guarantee is executed. The ratings do not address counterparty risk nor the likelihood of any event of default or termination events under the agreement occurring.

The rating actions follow an annual review of the transactions and are based on the following analytical considerations:
-- Portfolio performance, in terms of cumulative defaults, and compliance with portfolio profile tests under the replenishment period as of the reporting date of September 2019;
-- Updated default rate, recovery rate and expected loss assumptions for the reference portfolios; and
-- The current available credit enhancement to the rated tranches and capacity to withstand losses under stressed interest scenarios.

PORTFOLIO PERFORMANCE
The transactions are currently within their three-year replenishment periods during which time the Beneficiary can add new reference obligations or increase the notional amount of existing reference obligations provided that they meet eligibility criteria, portfolio profile tests and are made according to replenishment guidelines. The replenishment period ends in November 2021 for Colonnade Global 2018-2 and in December 2021 for the three other transactions.

The Guaranteed Portfolio of Colonnade Global 2018-2 currently stands at USD 1,323 million, below the maximum Guaranteed Portfolio notional amount of USD 1,333 million. The Guaranteed Portfolio of Colonnade Global 2018-3X currently stands at the maximum Guaranteed Portfolio notional amount of USD 2,299 million. The Guaranteed Portfolio of Colonnade Global 2018-4 currently stands at USD 2,195 million, below the maximum Guaranteed Portfolio notional amount of USD 2,325 million. The Guaranteed Portfolios of Colonnade Global 2018-5 currently stands at USD 517 million, below the maximum Guaranteed Portfolio notional amount of USD 625 million. For the four transactions, the Guaranteed Portfolios are non-granular, composed mainly of revolving credit facilities, bear a floating interest rate and are mainly unsecured. The facilities in each Guaranteed Portfolio are mainly drawn in the protection currency, which is U.S. dollars for the four transactions.

The composition of the Guaranteed Portfolio of Colonnade Global 2018-2 is similar in terms of DBRS Ratings and DBRS Country Tiers since closing. The composition of the Guaranteed Portfolios of Colonnade Global 2018-3X, Colonnade Global 2018-4 and Colonnade Global 2018-5 has deteriorated in terms of DBRS Ratings with an increased concentration in the BBB rating, while it has improved or is similar in terms of DBRS Country Tiers since closing. Nevertheless, the performance observed in terms of DBRS Ratings is compensated by the decrease in the weighted-average remaining term of the portfolio, which is the main driver of the ratings confirmations for the four transactions.

In terms of the DBRS Industry concentrations and of borrower group concentrations that are both prescribed by the portfolio profile tests, the Guaranteed Portfolio of Colonnade Global 2018-2 and Colonnade Global 2018-5 show an increase since closing. The Guaranteed Portfolio of Colonnade Global 2018-3X and Colonnade Global 2018-4 are stable in terms of borrower group concentrations and DBRS Industry concentrations, respectively, however both are close to the limits prescribed by the Portfolio Profile Tests.

As of September 2019, there have not been any borrower defaults and the portfolio profile tests allowing further replenishment of the Guaranteed Portfolio have all been met.

PORTFOLIO ASSUMPTIONS
The transactions are subject to interest rate risk as the loans in the Guaranteed Portfolios bear floating interest rates which could lead to higher losses under the Guarantee in an upward interest scenario. In addition, up to 2% of each Guaranteed Portfolio amount can be drawn in currencies other than the U.S. dollar, British pound sterling, euro, Canadian dollar, Swedish krona, Norwegian krone, Danish krone, Australian dollar, Japanese yen and Swiss franc (Minority Currencies). To mitigate the interest rate risk, additional covenants on spread and the weighted-average payment frequency of the portfolio are in place.

Based on its “Interest Rate Stresses for European Structured Finance Transactions” methodology and incorporating these covenants, DBRS Morningstar calculated a stressed interest rate index at each rating level for the obligations denominated in Eligible Currencies and Minority Currencies. For example, at the AAA (sf) stress level, for the four transactions, the stressed interest rate index for the obligations denominated in Eligible Currencies is 7.1% and the stressed interest rate index for the obligations denominated in Minority Currencies is 35.6%.

DBRS Morningstar calculated the weighted-average recovery rate at each rating level based on the worst-case concentrations in terms of DBRS Country Tier, security levels permissible under the portfolio profile tests, borrower group and DBRS Industry classification and adjusted its assumptions with the projected loss on the guarantee under stressed interest rate scenarios. For example, at the AAA (sf) stress level, the recovery rate was reduced to 31.0% from 35.2% for Colonnade Global 2018-2, to 32.0% from 35.9% for Colonnade Global 2018-3X, to 29.0% from 33.3% for Colonnade Global 2018-4 and to 29.1% from 33.3% for Colonnade Global 2018-5.

DBRS Morningstar used its CLO Asset Model to update its expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a mapping from Barclays’ internal ratings models to DBRS ratings. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit” methodology.

CREDIT ENHANCEMENT
The credit enhancement levels for each of the tranches remains the same as at closing, given that no loss has been recorded to date. Currency risk is mitigated in these transactions. Although the obligations in the Guaranteed Portfolio can be drawn in various currencies, any negative impact from currency movements is overall neutralised and therefore movements in the foreign exchange rate should not have a negative impact on the rated tranches.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the ratings is “Rating CLOs and CDOs of Large Corporate Credit”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

An asset analysis was conducted. Due to the inclusion of a revolving period in the transactions, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transactions legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include information provided by Barclays.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS Morningstar was supplied with one or more third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Correlation Assumption Used: Base Case Correlation (15% intra-industry and 6% inter-industry), a 20% and 40% increase on the base case correlation parameters.
-- Recovery Rates Used: Base Case Recovery Rate, a 10% and 20% decrease in the Base Case Recovery Rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

For Colonnade Global 2018-2, DBRS Morningstar concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would both lead to a downgrade of the transaction to by up to two notches. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead a downgrade of the transaction to by up to two notches.

For Colonnade Global 2018-3X, DBRS Morningstar concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would both lead to a downgrade of the transaction to by up to three notches. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead a downgrade of the transaction to by up to three notches.

For Colonnade Global 2018-4, DBRS Morningstar concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the transaction to by up to three notches or a downgrade of the transaction by up to two notches. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead a downgrade of the transaction to by up to three notches.

For Colonnade Global 2018-5, DBRS Morningstar concludes that a hypothetical increase of the Base Case Correlation by 40% or a hypothetical decrease of the Base Case Recovery Rate by 20%, ceteris paribus, would each lead to a downgrade of the transaction to by up to three notches or a downgrade of the transaction by up to two notches. A scenario combining both an increase in the Correlation by 20% and a decrease in the Base Case Recovery Rate by 10% would lead a downgrade of the transaction to by up to three notches.

For further information on DBRS Morningstar 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: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 29 November 2018 for Colonnade Global 2018-2, 6 December 2018 for Colonnade Global 2018-3X and 21 December 2018 for Colonnade Global 2018-4 and Colonnade Global 2018-5

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
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.

-- Rating CLOs and CDOs of Large Corporate Credit
-- Master European Structured Finance Surveillance Methodology
-- Mapping Financial Institution Internal Ratings to DBRS Ratings for Global Structured Credit
-- Interest Rate Stresses for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers

A description of how DBRS Morningstar 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 info@dbrs.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.