DBRS Ratings Limited (DBRS Morningstar) finalised its provisional ratings previously assigned on the following classes of notes issued by Marketplace Originated Consumer Assets 2019-1 PLC (the Issuer):
-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BBB (low) (sf)
DBRS Morningstar does not rate the Class Z1 or the Class Z2 notes also issued in this transaction.
The final portfolio mix and reduction in the prefunding amount had a positive impact on the final ratings assigned to the Class E Notes and Class F Notes, which differ from the provisional ratings of BBB (sf) and BB (high) (sf), respectively.
The ratings of the Class A1 and A2 notes address the timely payment of interest and the ultimate repayment of principal by the legal maturity date in December 2028. The ratings of the Class B, C, D, E, and F notes address the ultimate payment of interest and repayment of principal by the legal maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche.
DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the notes.
-- The originator) and the servicer’s role and capabilities with respect to originations, underwriting and servicing.
-- DBRS Morningstar’s operational risk review on Zopa Limited, which it deemed to be an acceptable servicer.
-- The appointment of a backup servicer and its capabilities with respect to servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s sovereign rating of United Kingdom of Great Britain and Northern Ireland at AAA with Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
The transaction represents the issuance of notes backed by a portfolio of approximately GBP 228 million receivables. The portfolio may be topped up on the December 2019 or the January 2020 payment date with purchase of GBP 17 million additional receivables. The purchase of the additional receivables was prefunded on the issue date. The securitised fixed-rate receivables are related to unsecured consumer loan contracts granted to private individuals residing in the UK through Zopa Limited. Zopa Limited will also service the portfolio.
The transaction allocates payments on separate interest and principal priorities, and benefits from a cash reserve and an amortising liquidity reserve funded on the issue date with part of the proceeds of subscription of Class Z1 notes. The cash reserve can be used to cover senior costs, interest on the rated notes, and to offset defaulted receivables, thus providing credit enhancement. The liquidity reserve can be used to cover senior costs and interest on the Class A and Class B notes where the cash reserve is not enough but cannot be used to offset losses or interest shortfalls under the other classes. Principal funds can also be borrowed to cover senior expenses and interest under the rated notes.
The repayment of the notes starts on the first payment date on a pro rata basis until the occurrence of certain events such as breach of performance triggers, or amortisation of the rated notes below 50% of the initial amount. Under these circumstances, the principal repayment of the notes becomes fully sequential and the switch is non-reversible.
The Class A1 and Classes B through F notes pay interest indexed to daily-compounded Sterling Overnight Index Average (Sonia) plus a margin while the Class A2 Notes pay interest indexed to one-month GBP Libor plus a margin whereas the portfolio pays fixed-interest rate.
The interest rate risk arising from the mismatch between the Issuer’s liabilities in the portfolio hedged through interest rate swaps on Sonia and Libor and an interest rate cap on Sonia and Libor with Natwest Markets plc, which, at closing, DBRS Morningstar deems to be a counterparty eligible to act in such capacity in accordance with its rating criteria. The transaction documents envisage downgrade provisions broadly consistent with DBRS Morningstar’s criteria, although with minor deviations that DBRS Morningstar addressed in its analysis.
The transaction cash flow structure was analysed in Intex DealMaker.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.
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 Zopa Limited and the transaction arranger, Deutsche Bank AG.
The data and information relevant for the ratings include performance and portfolio data relating to the loans originated through Zopa Limited’s marketplace lending platform:
-- Static origination, default, and recoveries data going back to March 2005.
-- Dynamic portfolio origination, outstanding balance, prepayment, and arrears data from March 2005.
-- The final pool cut dated end of November 2019.
-- A theoretical amortisation of the final pool.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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 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.
These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.
This is the first rating action since the Initial Rating Date.
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 with the parameters used to determine the ratings.
-- Probability of default (PD) used: Expected PD of 6.5% and a 32%, 23%, 18%, 15%, 13%, and 11%, respectively, for AAA (sf), AA (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf) scenarios, a 25% and 50% increase on the applicable PD.
-- Recovery rate used: Expected recovery rate of 20%.
-- Loss given default (LGD) used: Expected LGD of 80% and a 88%, 87%, 86%, 86%, 84%, and 83%, respectively, for AAA (sf), AA (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf) scenarios, a 25% and 50% increase on the applicable LGD.
Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase on the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase on the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase on the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase on the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are, respectively:
-- Class A1 and A2 Notes: AAA (s), AA (high) (sf), AAA (sf), AA (low) (sf), AA (sf), AAA (sf), AA (low) (sf), AA (sf).
-- Class B Notes: A (high) (sf), A (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (high) (sf), A (sf), BBB (high) (sf).
-- Class C Notes: A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (low) (sf), A (sf), BBB (high) (sf), BBB (low) (sf).
-- Class D Notes: BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (low) (sf), BB (sf), BBB (high) (sf), BBB (low) (sf), BB (sf).
-- Class E Notes: BBB (low) (sf), BB (sf), BBB (low) (sf), BB (low) (sf), B (sf), BBB (low) (sf), BB (low) (sf), B (sf).
-- Class F Notes: BB (sf), B (sf), BB (sf), B (low) (sf), below B (low) (sf), BB (sf), B (low) (sf), below B (low) (sf)
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: Paolo Conti, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 5 December 2019
DBRS Ratings Limited
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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:
--Rating European Consumer and Commercial Asset-Backed Securitisations
--Operational Risk Assessment for European Structured Finance Originators
--Operational Risk Assessment for European Structured Finance Servicers
--Legal Criteria for European Structured Finance Transactions
--Derivative Criteria for European Structured Finance Transactions
--Interest Rate Stresses 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 email@example.com.
This press release was amended on 7 January 2020 to add the following missing disclosure: "DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process".