DBRS Morningstar Comments on Securitisation of Catalogue Assets Limited Amendments

DBRS Ratings Limited (DBRS Morningstar) reviewed the amendments to the Securitisation of Catalogue Assets Limited transaction that were executed on 27 May 2020 (the amendments) and concluded that the amendments do not in and of themselves, at this time, result in the downgrade or withdrawal of the current ratings of AAA (sf) and A (sf) assigned to the Class A-S Variable Funding Notes and the Class A-J Variable Funding Notes, respectively. The amendments are effective as at 29 May 2020.

The amendments have been executed in the context of the Coronavirus Disease (COVID-19) pandemic and follow the introduction in the UK of certain measures by the Financial Conduct Authority (the FCA) to ease and support distressed individuals by granting temporary payment holidays (COVID-19 payment holiday). Obligors who benefit from a maximum three-month payment holiday (COVID-19 accounts) will be exempt from payment obligations (including monthly minimum payment) for the duration of the payment holiday.

The amendments include certain waivers and clarifications to prevent the breach of certain triggers in the transaction if solely due to the granting of COVID-19 payment holidays, and permit the continuation of the purchase and funding of such receivables. Such waivers are in effect only after 27 July 2020 for buy-now pay-later accounts and after 13 July for revolving credit accounts.

The amendments include:

-- Temporary exclusion of the COVID-19 accounts from the ratios relevant for payment rate and delinquency triggers.
-- Limit the exclusion to the respective application period.
-- Disciplining and restricting the faculties of the servicer with respect to granting COVID-19 payment holidays.
-- Introducing additional reporting available to monitor COVID-19 accounts.
-- Clarifying the eligibility criteria to prevent the exclusion of COVID-19 payment holidays granted during the period 28 March – 25 April 2020.
-- Introducing a 20% threshold for COVID-19 accounts so that COVID-19 accounts exceeding the threshold will not be taken into consideration for funding and credit enhancement of the notes.

Following the amendments, the calculation of the ratios used in the triggers will not consider the COVID-19 accounts for the duration of the payment holiday. However, there is a threshold of 20% for the COVID-19 accounts that cannot be exceeded.

The changes, particularly the effective reduction of the minimum payment rate permitted with the amendments, are weakening some structural features designed to protect the rated notes. However, the temporary nature of the changes to the way the ratio is calculated and the cash flow analysis conducted effectively reassure DBRS Morningstar that the changes themselves would not themselves affect the ratings. Furthermore, additional reporting is made available to monitor the portfolio and the liquidity support provided by the fully funded liquidity reserve represent additional mitigating factors.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in British pound sterling unless otherwise noted.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
 
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