DBRS Morningstar Confirms Ratings on Bumper UK 2019-1 Finance plc

DBRS Ratings Limited (DBRS Morningstar) confirmed the ratings on the Class A and B notes (together, the Notes) issued by Bumper UK 2019-1 Finance plc (Bumper UK 2019-1 or the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)

The ratings on the Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the June 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
-- No revolving termination events have occurred.

The transaction is a securitisation of auto lease agreements granted and serviced by LeasePlan UK Limited (LPUK) to corporate, small and medium-size enterprises (SMEs), retail, and public-sector clients in England and Wales (Scottish and Northern Irish lessees are excluded). The residual value (RV) claims related to the auto leases are securitised. The legal final maturity date is on the payment date in December 2028.

Bumper UK 2019-1 is currently in its one-year revolving period, which is scheduled to end on 20 July 2020. During the revolving period, the Seller can offer additional receivables and their related RV Claims that the Issuer will purchase subject to eligibility criteria, concentration limits, performance triggers, and other conditions set out in the transaction documents.

PORTFOLIO PERFORMANCE
The GBP 550.0 million portfolio comprises leases solely for the finance of new vehicles. As of the June 2020 payment date, SME and retail customers represented 66.2% of the outstanding collateral balance, whereas corporate and public sector clients amounted to 30.7% and 3.1% of the pool balance, respectively. The RV receivables associated with the auto leases comprised 45.0% of the current portfolio balance. As of the June 2020 payment date two- to three-month arrears and 90+ delinquencies represented 0.4% and 0.3% of the outstanding portfolio balance, respectively, since the DBRS Morningstar Initial Rating a year ago. As of the June 2020 payment date, the cumulative default ratio was 0.7%. Arrears and defaults remained low and within DBRS Morningstar’s expectations.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar increased its base case PD to 3.6% from 3.1% at closing and its base case LGD to 57.3% and 54.9% at AAA (sf) and AA (high) (sf), respectively, from to 55.0% and 52.5% at AAA (sf) and AA (high) (sf), respectively, and maintained its residual value haircut of 39.8% and 36.8% at AAA (sf) and AA (high) (sf). The increases reflect the adjustments because of the Coronavirus Disease (COVID-19). DBRS Morningstar also considered the current portfolio for its analysis given that the replenishment of the portfolio ended on the June 2020 payment date.

CREDIT ENHANCEMENT
As of the June 2020 payment date, credit enhancement to the Class A Notes and Class B Notes was 27.3% and 21.8%, respectively, stable since the DBRS Morningstar initial rating because of the transaction being in its revolving period. The credit enhancement to the Notes consists of the subordination of their respective junior notes.

The transaction benefits from a liquidity reserve and a maintenance reserve. The liquidity reserve covers senior fees, swap payments and interest payments on the Notes. The liquidity reserve is currently at its target amount of GBP 2.7 million.

A Reserve Trigger Event is currently ongoing; therefore, LPUK needs to transfer collections expected to be received at any time during the collection period in the calendar month following a payment date, one payment date in advance.

BNP Paribas Securities Services SCA/London acts as the account bank. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA/London, 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.

Banco Santander, S.A. acts as the swap counterparty. DBRS Morningstar's private rating of Banco Santander, S.A. is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings actions are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, given the exposure to corporate and SME borrowers, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.

In addition, DBRS Morningstar applied an additional haircut to its base case recovery rate. DBRS Morningstar also conducted additional sensitivity analysis to determine that the transaction benefits from sufficient liquidity support to withstand high levels of payment holidays or payment moratoriums in the portfolio.

On 16 April 2020, the DBRS Morningstar Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated transactions in Europe exposed to corporate and SMEs borrowers. For more details please see https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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 these transactions are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include investor reports and loan-level data provided by LPUK.

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

At the time of the initial ratings, 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.

The last rating action on this transaction took place on 5 June 2019, when DBRS Morningstar finalised its provisional ratings on the Notes.

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 at www.dbrsmorningstar.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD and LGD 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, LGD, and RV haircut assumptions at the AAA (sf) rating level are: PD of 3.6%, LGD of 57.3%, and RV haircut of 39.8%.
-- The base case PD, LGD, and RV haircut assumptions at the AA (high) (sf) rating level are: PD of 3.6%, LGD of 54.8%, and RV haircut of 39.8%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD, LGD, and RV haircut increase by a certain percentage over the base case assumption. For example, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in either the PD or LGD. Furthermore, if both the PD and LGD as well as the RV haircut increase by 50%, the rating of the Class A Notes would be expected to fall to AA (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 (high) (sf)
-- 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AA (high) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (high) (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in RV haircut, expected rating of AA (low) (sf)
-- 25% increase in both PD and LGD, expected rating of AA (sf)
-- 50% increase in both PD and LGD, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in both 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:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 May 2019

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom
Tel. +44 (0) 20 7855 6600

Registered and incorporated under the laws of England and Wales: Company No. 7139960.

The rating methodologies used in the analysis of these transactions can be found at: http://www.dbrsmorningstar.com/about/methodologies.

--Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
--Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020) https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations
--Rating CLOs Backed by Loans to European SMEs and SME Diversity Model v2.4.0.0 (8 July 2019) https://www.dbrsmorningstar.com/research/347780/rating-clos-backed-by-loans-to-european-smes
--Rating European Structured Finance Transactions Methodology (28 February 2020) https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology
--Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
--Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
--Derivative Criteria for European Structured Finance Transactions (26 September 2019) https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions
--Operational Risk Assessment for European Structured Finance Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
--Operational Risk Assessment for European Structured Finance Originators (28 February 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrsmorningstar.com/research/278375.

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