Press Release

DBRS Morningstar Confirms Rating of Cardiff Auto Receivables Securitisation 2018-1 plc

December 04, 2019

DBRS Ratings Limited (DBRS Morningstar) confirmed its rating of the Class A Notes issued by Cardiff Auto Receivables Securitisation 2018-1 plc (CARS 2018-1 or 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 on the payment date in December 2026.

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 October 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and residual value (RV) haircut assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at its rating level.
-- No revolving termination events have occurred.

CARS 2018-1 is a securitisation of receivables related to hire purchase and personal contract purchase (PCP) agreements for new and used vehicles granted by Black Horse Limited (Black Horse or the Seller) to private borrowers in the United Kingdom. PCP agreements afford the borrower the option to turn in the purchased vehicle at contract maturity as an alternative to making a final balloon payment, exposing the Issuer to RV risk. The entire portfolio consists of fixed-rate loans paying on a monthly basis.

The transaction is currently in its revolving period ending on 23 December 2019 during which, the Seller can offer additional receivables that the Issuer would purchase subject to eligibility criteria, portfolio performance triggers, and other conditions set out in the transaction documents.

Delinquencies (up to 180 days in arrears) have been low since closing with loans that are two-to-three-months in arrears and three-to-six months in arrears representing 0.11% and 0.13% of the outstanding portfolio balance, respectively. According to the transaction documents, defaulted loans are defined as loans that are more than 180 days in arrears or that have been declared defaulted by the Servicer. As of the October 2019 payment date, the cumulative default ratio represents 1.8% of the sum of the original portfolio balance and total balance of receivables purchased during the revolving period. Cumulative recoveries represent 60.2% of the cumulative defaulted amount. The performance of the portfolio remains within DBRS Morningstar’s expectations.

Loans can become defaulted or reach various levels of delinquency during the revolving period, provided that the default level or delinquency do not lead to portfolio performance trigger events. As of the October 2019 payment date, no portfolio performance trigger events have occurred.

DBRS Morningstar maintained its base case PD and LGD assumptions at 6.6% and 34.5%, respectively. The transaction is subject to voluntary termination (VT) risk, as under the UK Consumer Credit Act, the borrower has the right to terminate a consumer loan agreement after having paid at least half of the total amount payable, provided that the vehicle returns to the finance provider in good condition. As of October 2019, 70.8% of PCP receivables have an original term longer than four years, which poses an increased VT risk, as shown in DBRS Morningstar’s commentary “UK Autos: Elongated PCP Terms Increase the Risk of Voluntary Termination”. DBRS Morningstar factored this risk into its base case PD and LGD assumptions.

DBRS Morningstar increased the RV haircut at the AAA (sf) rating level to 41.2% from 40.6%, to reflect the increased guaranteed future value observed in new originations following a change in Black Horse’s calculation methodology, which changed to an in-house model in mid-2018 from a third-party model provided by cap hpi. PCP receivables can compose up to 75% of the portfolio outstanding balance during the revolving period.

Subordination of the Class S Notes provides the credit enhancement to the Class A Notes. Credit enhancement remains at 25.6%, given that the transaction is in its revolving period.

The transaction benefits from a nonamortising reserve that provides liquidity support only to the Class A Notes. As of the October 2019 payment date, the reserve was funded at its target amount of GBP 42.8 million. DBRS Morningstar deems the commingling and set-off risks to be limited in this transaction.

Lloyds Bank plc (Lloyds Bank) acts as the account bank for the transaction. Based on the account bank reference rating of Lloyds Bank plc at AA, which is one notch below the DBRS Morningstar public Long-Term Critical Obligations Rating of AA (high), 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.

DBRS Morningstar analysed the transaction structure 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.

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 at:

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:

The sources of data and information used for this rating include loan-level data and investor reports provided by Lloyds Bank.

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 purposes 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.

This is the first rating action since the initial rating date on 4 December 2018.

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

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):

-- DBRS Morningstar expected a lifetime base case PD, LGD and RV haircut 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 6.6% and 34.5%, respectively. The RV haircut is 41.2% at the AAA (sf) rating level.
-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD and the RV haircut increase by a certain percentage over the base case assumption. For example, if the RV haircut increases by 50%, the rating of the Class A Notes would be expected to fall to AA (sf), assuming no change in both the PD and LGD. If both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the RV haircut. Furthermore, if the PD, LGD and the RV haircut all increase by 50%, the rating of the Class A Notes would be expected to fall to A (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of AA (high) (sf)
-- 50% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in PD and LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and LGD, expected rating of AA (sf)
-- 25% increase in PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in PD and LGD and 50% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in PD and LGD and 50% increase in RV haircut, expected rating of A (high) (sf)

For further information on DBRS Morningstar 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: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 December 2018

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:

--Master European Structured Finance Surveillance Methodology
--Rating European Consumer and Commercial Asset-Backed Securitisations
--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:

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