DBRS Ratings Limited (DBRS Morningstar) assigned ratings to the Class A1 Notes and Class A2 Notes (the Class A Notes) issued by Globaldrive Dealer Floorplan UK 2021 plc (the Issuer), as follows:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
DBRS Morningstar did not assign ratings to the Class B Notes issued in this transaction. The ratings on the Class A Notes address the timely payment of the Class A capped interest amounts and the ultimate repayment of principal by the legal maturity date.
The Issuer is a public company with limited liability incorporated under the laws of England and Wales as a securitisation special purpose entity.
The transaction is a securitisation of auto wholesale receivables originated in the United Kingdom by FCE Bank plc (FCE) and related to the purchase and financing by motor vehicle dealers of their new vehicle inventory. The ultimate parent company of FCE is Ford Motor Company.
The transaction envisages a revolving period of two years, scheduled to terminate on the payment date in November 2023 in the absence of any early amortisation events.
DBRS Morningstar based its ratings on the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement including subordination and the reserve fund..
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's stressed assumptions that consider dealer concentration levels and exposure, dealer liquidation scenarios and a deterioration in cash flow performance commensurate with the ratings assigned to the Class A Notes.
-- The transaction parties’ financial strength, historical presence and FCE’s capabilities with respect to managing the wholesale operations and the dealer network in the United Kingdom.
-- The sovereign rating of the United Kingdom, currently at AA (high) with a Stable trend; and.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s Legal Criteria for European Structured Finance Transactions methodology and the presence of legal opinions address the true sale of the assets to the Issuer.
Due to the dynamic nature of the receivables that reflect the underlying activity and seasonality on the new vehicle market in the United Kingdom, the transaction structure allows for the sizing of the Class A Notes and the Class B Notes to be variable while constrained by their respective maximum principal amounts.
Advances on the Class A Notes and Class B Notes can be applied to 1) purchase additional receivables, 2) in respect of the Class B Notes only, to fund overconcentrated and stop-ship receivables, 3) fund optional redemptions of either the Class A Notes or the Class B Notes, respectively. Receivables are classified as overconcentrated when the exposure to a dealer exceeds 2.0% of the aggregated discounted balance.
Prior to an enforcement event, the transaction incorporates separate interest and principal waterfalls. Under the interest waterfall, any excess spread is available to cure defaulted receivables and the reserve is available to cover senior expenses and the Class A capped interest amount. Additional interest amounts could become payable in excess of the Class A capped interest amount and are repaid after both the replenishment of the reserve and the allocation for defaulted receivables. However the deferral or non-payment of these uncapped amounts does not constitute an enforcement event under the transaction documents. Under the principal waterfall and following the end of revolving period, the Class A Notes are redeemed on a strictly sequential basis with no principal allocated to the Class B Notes until the Class A Notes are repaid in full.
The revolving period may prematurely end for various reasons including 1) the occurrence of a payment rate trigger (below 18.0% for three consecutive months), 2) non-compliance with the class ratio that requires the Class B Notes to provide at least 30% subordination to the Class A Notes excluding receivables in excess of exposure limits, 3) non-compliance with the minimum required pool balance, 4) the reserve account is not replenished to its target (1.0% of the Class A Notes Maximum Principal Amount), and 5) principal defaults are not covered under the interest priority of payments.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
Barclays Bank plc (Barclays) is the account bank for the transaction. DBRS Morningstar has a Long-Term Senior Debt rating of A and a Long Term Critical Obligations Rating of AA (low) on Barclays which meets DBRS Morningstar’s criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with DBRS Morningstar’s criteria with respect to Barclays’ role as account bank.
The transaction is exposed to interest rate risk due to the difference between the floating-rate indices applied to the Class A Notes and to the receivables. No hedging counterparty has been appointed for the transaction and DBRS Morningstar has applied its Interest Rate Stresses for European Structured Finance Transactions methodology.
CORONAVIRUS DISEASE (COVID-19) CONSIDERATIONS
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase in the coming months for many asset-backed securities (ABS) transactions. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries:
https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
On 2 November 2021, DBRS Morningstar updated its 8 May 2020 commentary outlining the impact of the coronavirus crisis on performance of DBRS Morningstar-rated auto ABS transactions in Europe. For more details, please see:
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the rating is “Rating European Auto Wholesale Securitisations” (05 November 2021).
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.
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 considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.
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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/381451/global-methodology-for-rating-sovereign-governments.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.
The sources of data and information used for the ratings include FCE.
DBRS Morningstar received historical data and information including:
-- Dynamic receivables balances and payment rate
-- Dealer concentration levels
-- Inventory ageing
-- Portfolio interest earned
-- Dealer financial and judgemental ratings
-- Default and losses for dealers, including when dealers have been declared ‘status’
-- Set-off exposure
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
DBRS Morningstar was not 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 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 instruments.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios under the cash flow approach, as compared to the parameters used to determine the rating (the base case):
-- Annualised default rate: 4.0%.
-- Monthly principal payment rate: 16.0%.
-- Maximum annualised default rate stress under the AAA (sf) scenario: 52.5%.
-- Maximum monthly principal payment rate decline under the AAA (sf) scenario: 55.0%.
Scenario 1: A 25% increase in the annualised default rate
Scenario 2: A 50% increase in the annualised default rate
Scenario 3: A 25% decrease in the monthly principal payment rate
Scenario 4: A 50% decrease in the monthly principal payment rate
DBRS Morningstar concludes that the expected ratings under the four stress scenarios are:
-- Class A Notes: AAA (sf), AAA (sf), AAA (sf), BBB (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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
This rating is endorsed by DBRS Ratings GmbH for use in the European Union.
Lead Analyst: Miklos Halasz, Assistant Vice President
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 30 November 2021
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating European Auto Wholesale Securitisations (05 November 2021), https://www.dbrsmorningstar.com/research/387537/rating-european-auto-wholesale-securitisations.
-- Rating European Structured Finance Transactions Methodology (30 July 2021),
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021)
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.