DBRS Morningstar Upgrades Ratings on MotoPark Finance plc

DBRS Ratings Limited (DBRS Morningstar) upgraded its ratings of the Notes issued by MotoPark Finance plc (the Issuer) as follows:

-- Class A Notes upgraded to A (high) (sf) from A (sf)
-- Class B Notes upgraded to BBB (high) (sf) from BBB (sf)

The ratings of the Class A and Class B Notes (together, the Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The upgrades 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 January 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.
The Issuer is a securitisation of hire purchase and personal contract purchase auto loan contracts originated and serviced by FirstRand Bank Limited (FirstRand), acting through its London Branch through its trading name, MotoNovo Finance Limited, to borrowers in the UK. The transaction had an 18-month revolving period, which terminated in July 2019.

PORTFOLIO PERFORMANCE
As of January 2020, loans two to three months in arrears represented 0.3% of the outstanding portfolio balance, stable since January 2019. Loans more than three months in arrears represented 0.9% of the outstanding portfolio balance, up from 0.4% in January 2019. Cumulative write-offs were 1.3% and cumulative voluntary terminations were 0.2%.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar conducted an analysis of the remaining receivables and assumed base case PD, LGD, and Residual Value (RV) Haircut assumptions as follows:
-- Base Case PD assumption of 5.7%
-- Base Case LGD assumptions of 64.5% and 61.9% at the A (high) (sf) and BBB (high) (sf) rating levels, respectively.
-- Base Case RV Haircut assumptions of 30.0% and 24.8% at the A (high) (sf) and BBB (high) (sf) rating levels, respectively.

CREDIT ENHANCEMENT AND RESERVES
As of the January 2020 payment date, credit enhancement to the Class A Notes was 9.2%, up from 6.0% at the DBRS Morningstar initial rating. Credit enhancement to the Class B Notes was 4.0%, up from 2.0% at the DBRS Morningstar initial rating.

The transaction benefits from a Cash Reserve funded to its target balance of GBP 5.4 million, equal to 1.3% of the principal outstanding balance of the receivables. The Cash Reserve is available to cover senior fees and interest on the Class A and Class B Notes.

HSBC Bank plc (HSBC) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of HSBC, 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.

HSBC also acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of HSBC is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

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”.

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 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 these ratings include investor reports and information provided by HSBC and FirstRand Bank.

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

At the time of the initial rating, 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 24 January 2019, when DBRS Morningstar confirmed its ratings of the Class A and Class B Notes at A (sf) and BBB (sf), respectively.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies is available at 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 rating (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 is 5.7% and the base case LGD assumptions are 64.5% and 61.9% at the A (high) (sf) and BBB (high) (sf) rating levels, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A Notes would be expected to fall to A (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to BB (high) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in LGD, expected rating of BB (low) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating below B (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: Clare Wootton, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 January 2018

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions
-- Derivative Criteria 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 info@dbrs.com.