DBRS Morningstar Confirms Ratings on BFS Funding I Limited Following Amendment

DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (sf) ratings on the Euro Variable Funding Note, the Sterling Variable Funding Note, and the U.S. Dollar Variable Funding Note (together, the VFNs) issued by BFS Funding I Limited (the Issuer).

The transaction is a securitisation collateralised by a portfolio of trade receivables granted by Bibby Financial Services Limited's (BFS) subsidiaries. Bibby Invoice Finance UK Limited (BIF UK) acts as the master servicer and the master seller of the trade receivables portfolio.

The Issuer acquired the trade receivables through the issuance of VFNs in British pound sterling, euros, and U.S. dollars (together, the approved currencies) purchased directly by Bank of America Merrill Lynch International DAC (BAML) or Barclays Bank PLC (Barclays), or indirectly by HSBC Bank plc and Lloyds Bank plc via their conduits in Regency Assets DAC and Gresham Receivables (No. 37) UK Limited, respectively.

Following an amendment to the transaction signed on 25 October 2022, Bayerische Landesbank will replace BAML as a note purchaser and funding agent. The aggregate funding commitment will also increase to an equivalent of GBP 750 million from an equivalent of GBP 600 million.

Subordinated loans in the approved currencies provided by BIF UK and proceeds from the Mezzanine B and Mezzanine C Notes in British pound sterling help to finance the purchase of the portfolio.

The transaction originally closed in October 2015 and has been in its revolving period since. Following the amendment, the revolving period was extended until 27 October 2025, provided that no amortisation event or Issuer event of default occurs. The legal final maturity date is one year after the end of the revolving period (i.e., on 27 October 2026 at the latest).

The confirmations are based on the following analytical considerations:
-- Portfolio performance of the transaction, in terms of delinquencies, defaults, dilutions, and days sales outstanding, as of 30 September 2022;
-- Current sizing of the reserves sufficient to withstand stresses at the AA (sf) rating level;
-- No early amortisation events; and
-- An amendment to the transaction executed on 25 October 2022 and effective on 27 October 2022.

AMENDMENT
The amendment to the transaction involves the following:
-- The replacement of BAML with Bayerische Landesbank;
-- The increase in the VFN funding commitment to an equivalent of GBP 750 million from an equivalent of GBP 600 million, with an additional possible increase to an equivalent of GBP 900 million;
-- The extension of the revolving period to 27 October 2025 from 31 August 2023. The legal final maturity date remains one year after the end of the revolving period (i.e., by 27 October 2026);
-- The increase in the debtor concentration limits, exposures to trade receivables in euros, and U.S. dollars;
-- Some changes to the financial covenants on BFS;
-- The switch in the benchmark rate for the U.S.-dollar VFN to the secured overnight financing rate from one-month U.S.-dollar Libor;
-- The inclusion of Luxembourg as an “approved debtor jurisdiction” and an “additional approved contract jurisdiction”; and
-- The inclusion of Australia and Canada as “approved debtor restricted jurisdictions”.

PORTFOLIO PERFORMANCE
As of 30 September 2022, the gross receivables balance was equivalent to GBP 945 million and the three-month average delinquency ratio, default ratio, dilution ratio, and days sales outstanding were 9.9%, 2.5%, 3.3%, and 44.8 days, respectively, below their respective trigger levels of 18.5%, 3.5%, 6.0%, and 70.0 days, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar evaluates the adequacy of available credit enhancement through compliance with transaction definitions of the loss reserve, the dilution reserve, and the carrying cost reserve as well as the level of factors incorporated in these definitions. The loss and dilution stress factors expected at the AA (sf) rating level are 2.25. According to DBRS Morningstar, the reserves levels remain commensurate with the increase in the debtor concentration limits, exposures to trade receivables in euros, and U.S. dollars introduced by the amendment.

CREDIT ENHANCEMENT
Credit enhancement is provided by the subordination of the Mezzanine B and Mezzanine C Notes, the subordinated loan, and overcollateralisation in the form of various reserves. DBRS Morningstar’s calculation takes into account the portfolio’s gross receivables balance as well as the available cash held in the Issuer’s accounts. As of 30 September 2022, the credit enhancement to the VFNs was 55.9% and the required reserve percentage was 35.3%.

Barclays acts as the account bank for the transaction. Based on the account bank reference rating of A (high) on Barclays (which is one notch below its DBRS Morningstar public Long Term Critical Obligations Rating of AA (low)), 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 ratings assigned to the VFNs, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

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

The principal methodologies applicable to the ratings are: “Master European Structured Finance Surveillance Methodology” (19 May 2022) and “Rating European Trade Receivables Securitisation Transactions” (19 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 methodologies consistently and conducted a review of the transaction in accordance with the principal methodologies.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the eligibility criteria and maximum potential borrowing set forth in the transaction legal documents.

DBRS Morningstar conducted a review of the transaction legal documents received in the context of the aforementioned amendment. A review of any other transaction legal documents was not conducted as they have remained unchanged since the most recent rating action.

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/401817/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 these ratings include monthly reports, a foreign-exchange model, and a credit enhancement model provided by BFI UK.

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 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 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 15 October 2021, when DBRS Morningstar confirmed its ratings on all VFNs at AA (sf).

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, as compared to the parameters used to determine the rating (the base case):
-- DBRS Morningstar expected loss stress factor and a dilution stress factor commensurate with the rating level as per the standards described in its “Rating European Trade Receivables Securitisation Transactions” methodology. Changes in the transaction documents with respect to the loss stress factor and the dilution stress factor can have a direct impact on the ratings on the VFNs.
-- The loss and dilution stress factors expected at the AA (sf) rating level are 2.25.

VFNs Risk Sensitivity:
-- A decrease of the loss stress factor and the dilution stress factor to 2.00 from 2.25, expected rating of A (sf)
-- A decrease of the loss stress factor and the dilution stress factor to 1.75 from 2.25, expected rating of BBB (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.

These ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Assistant Vice President
Rating Committee Chair: Carlos Silva, Senior Vice President
Initial Rating Date: 23 October 2015

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: https://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (19 May 2022),
https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- Rating European Trade Receivables Securitisation Transactions (19 November 2021),
https://www.dbrsmorningstar.com/research/388295/rating-european-trade-receivables-securitisation-transactions.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022),
https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Currency Stresses for Global Structured Finance Transactions (4 February 2022),
https://www.dbrsmorningstar.com/research/391916/currency-stresses-for-global-structured-finance-transactions.
--Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022),
https://www.dbrsmorningstar.com/research/396929/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 info@dbrsmorningstar.com.