Press Release

DBRS Morningstar Confirms Rating on Globaldrive Auto Receivables UK 2020-A plc Following Amendment

Auto

June 21, 2021

DBRS Ratings Limited (DBRS Morningstar) confirmed its A (sf) rating on the Class A Notes issued by Globaldrive Auto Receivables UK 2020-A plc.

The rating addresses the timely payment of interest and the ultimate payment of principal by the legal final maturity date.

The transaction is a securitisation of auto loans granted to private and commercial borrowers in the United Kingdom for the purchase of new and used cars and light commercial vehicles. The receivables are originated and serviced by FCE Bank plc (FCE). The transaction is subject to residual value (RV) risk through the presence of personal contract purchase (PCP) agreements.

The confirmation is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2021 payment date.
-- Probability of default (PD), loss given default (LGD), and RV haircut assumptions on a potential portfolio migration based on the past performance analysis.
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (sf) rating level.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
-- No revolving early termination events have occurred.
-- An amendment to the transaction effective on 21 June 2021.

AMENDMENT
The amendment to the transaction involves the following:
-- An extension of the revolving period to the payment date in June 2022 from June 2021.
-- An extension of the legal final maturity date to the payment date in June 2029 from June 2028.
-- An amendment to the fixed leg of the swap agreement to 0.1826% from -0.009% and to the respective swap schedule.
-- The removal of the sole noteholder condition, which stipulated that the revolving period may be extended, without a limit on the number of extensions, by an additional 12 months, if all the issued notes are owned by a single noteholder.

PORTFOLIO PERFORMANCE
Delinquencies have been relatively low since the DBRS Morningstar initial rating, except at the August 2020 payment date where a spike occurred in the context of the coronavirus pandemic. As of the May 2021 payment date (i) the two- to three-month arrears ratio and the 90+ delinquency ratio were at 0.0% and 0.1%, respectively; (ii) cumulative defaults represented 0.1% of the total purchased receivables since closing; (iii) and the residual value represented 57.3% of the outstanding portfolio balance.

As of the May 2021 payment date, there were no loans in a payment holiday granted in the context of the coronavirus pandemic as FCE elected to repurchase such receivables.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its base case PD at 4.4%, its base case LGD at 49.1%, and its residual value haircut at 25.0%, at the A (sf) rating level. DBRS Morningstar assumptions include the adjustments made in the context of the coronavirus pandemic.

CREDIT ENHANCEMENT
The credit enhancement to the Class A Notes consists of the subordination of the junior notes. As of the May 2021 payment date, the credit enhancement to the Class A Notes was at 17.0%, stable since the initial rating, given that the transaction is still in its revolving period.

The transaction benefits from a nonamortising reserve fund, which covers senior fees, swap payments, and interest on the Class A Notes and is also available to redeem the Class A Notes on the legal final maturity date. The liquidity reserve is currently funded at its target level of GBP 6.5 million.

Elavon Financial Services DAC, UK branch (Elavon UK) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon UK, 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. (Santander) acts as the swap counterparty for the transaction. DBRS Morningstar's Long Term Critical Obligations Rating of Santander at “AA (low)” 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 delinquencies may continue to increase in the coming months for many ABS transactions, some meaningfully. The rating is 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, DBRS Morningstar applied an additional haircut to its base case recovery rate.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020–22 period in select economies. These scenarios were last updated on 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar 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.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 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.

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

The principal methodologies applicable to the rating are “Master European Structured Finance Surveillance Methodology” (8 February 2021) and “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to consider potential portfolio migration based on the past performance analysis.

DBRS Morningstar has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment.

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/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include loan-level data, investor reports, historical vintage defaults, recoveries, and net losses data on voluntary and involuntary terminations and dynamic performance data on vehicle returns in the case of PCP agreements, all provided by FCE.

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 this rating 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.

This is the first rating action on this transaction since the Initial Rating Date.

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 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 with the parameters used to determine the rating (the base case):

-- DBRS Morningstar expected a lifetime base case PD, LGD, and RV haircut for a hypothetical migration of the portfolio according to the past performance analysis. 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 at the A (sf) level of 4.4%, 49.1%, and 25.0%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD, and the RV haircut increase by a certain percentage over the base case assumption. For example, if the RV haircut increases by 50%, the rating of the Class A Notes would be expected to fall to BBB (high) (sf), assuming no change in both the PD and LGD. If both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to A (low) (sf), assuming no change in the RV haircut. Furthermore, if the PD, LGD, and the RV haircut all increase by 50%, the rating of the Class A Notes would be expected to fall to BBB (sf).

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

This rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 26 June 2020

DBRS Ratings Limited
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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 this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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