DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) rating of the Class A Notes issued by Auto ABS UK Loans 2017 plc (the Issuer).
The rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in November 2025.
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;
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables; and
-- Current available credit enhancement to the notes to cover the expected losses at the AAA (sf) rating level.
Auto ABS UK Loans 2017 plc is a securitisation of personal contract purchase (PCP) and Conditional Sale (CS) auto loan contracts granted by PSA Finance UK Limited (PSA Finance) to borrowers in England, Scotland, Wales and Northern Ireland. The transaction closed in November 2017 with an initial portfolio balance of GBP 400.0 million and included a 12-month revolving period which ended in November 2018, during which additional receivables totalling GBP 190.0 million were purchased.
As of the October 2019 payment date, loans 1-30, 30-60 and 60-90 days in arrears represented 0.4%, 0.2% and 0.1% of the outstanding portfolio balance, respectively, while loans greater than 90 days in arrears amounted to 0.1%. Gross cumulative defaults amounted to 0.3% of the aggregate initial portfolio balance.
Following the end of the revolving period, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD and LGD assumptions to 3.3% and 28.5% respectively, based on updated historical performance data available from the originator.
As of the October 2019 payment date, credit enhancement to the Class A Notes increased to 38.2% from 21.3% twelve months ago and at the DBRS Morningstar initial rating, following the start of amortisation of the Class A Notes in December 2018.
The transaction benefits from an amortising reserve fund, funded at closing to GBP 4.7 million through a subordinated loan granted by PSA Finance. The reserve provides liquidity support to the transaction and is available to cover senior fees and expenses and interest on the Class A Notes. The reserve amortises subject to an Amortisation Threshold, which was reached on the October 2019 payment date, with a target balance equal to the higher of 3% of the outstanding Class A Notes balance at the preceding calculation date and 1% of the initial Class A Notes balance. As of the October 2019 payment date, the reserve is equal to its target balance of GBP 4.5 million.
The original account bank provider for the transaction, Wells Fargo N.A., London Branch, was replaced in September 2019 by Santander UK plc. Based on the DBRS Morningstar private rating of Santander UK plc, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar 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 Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
Wells Fargo Securities International Limited acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of Wells Fargo Securities International Limited is above the First Rating Threshold as described in DBRS Morningstar's "Derivative 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 Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
DBRS Morningstar received and reviewed updated legal documentation in the context of the change in account bank provider. The other transaction 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 “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 this rating include investor reports provided by BNP Paribas Securities Services SCA (the Cash Administrator) and updated historical performance data from PSA Finance (the Originator).
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 third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purpose of providing this rating 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.
The last rating action on this transaction took place on 15 November 2018, when DBRS Morningstar confirmed the rating of the Class A Notes at AAA (sf).
The lead analyst responsibilities for this transaction have been transferred to Andrew Lynch.
Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets, as well as an RV loss level. 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 3.3% and 28.5%, respectively.
-- The residual value (RV) loss applied at the AAA (sf) rating level is 42.2%.
Class A Notes Risk Sensitivity:
-- A hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 25%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 50%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 25%, and a hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 25%, and a hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 50%, and a hypothetical increase of the PD and LGD rates by 25%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
-- A hypothetical increase of the RV loss by 50% and a hypothetical increase of the PD and LGD rates by 50%, ceteris paribus, would not result in a change of the rating on the Class A Notes.
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: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 October 2017
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
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
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 firstname.lastname@example.org.