Press Release

DBRS Morningstar Confirms and Upgrades Ratings on Marketplace Originated Consumer Assets 2019-1 PLC

Consumer Loans & Credit Cards

November 05, 2021

DBRS Ratings Limited (DBRS Morningstar) confirmed and upgraded the ratings on the bonds issued by Marketplace Originated Consumer Assets 2019-1 PLC as follows:

-- Class A1 Notes confirmed at AAA (sf)
-- Class A2 Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AA (high) (sf) from AA (sf)
-- Class C Notes upgraded to AA (high) (sf) from A (high) (sf)
-- Class D Notes upgraded to AA (sf) from A (low) (sf)
-- Class E Notes upgraded to A (high) (sf) from BBB (high) (sf)
-- Class F Notes upgraded to A (low) (sf) from BBB (low) (sf)

The ratings on the Class A1 and A2 Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class B, C, D, E, and F Notes address the timely interest when the notes are the most senior, otherwise the ultimate payment of interest; as well as the ultimate repayment of principal by the legal final maturity date.

The rating actions 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 October 2021 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.

The transaction is a securitisation of unsecured consumer loans granted via a marketplace lending platform operated by Zopa Limited (Zopa) to borrowers in the UK and financed by M&G Investments plc and Prudential plc via funds. Zopa also services the receivables. Target Servicing Limited was appointed as a backup servicer.

The securitised portfolio is amortising, unsecured by nature, and pays fixed interest rate on a monthly basis. The loans are typically used for the purchase of a vehicle, debt consolidation, or home improvements. In June 2020, Zopa Bank Limited was granted a full banking licence and is now a deposit-taking entity.

The transaction is static and the legal final maturity date is on the payment date in December 2028.

PORTFOLIO PERFORMANCE
Delinquency ratios have been low since closing; however, their increase has been softened by the introduction of payment holidays around the April 2020 payment date. As of the October 2021 payment date, loans two to three months in arrears represented 0.7% of the outstanding portfolio balance up from 0.3% at last annual review. This ratio would have been 4.8% of the outstanding portfolio balance if no payment holiday had been granted, down from 5.4% at last annual review. Defaults are based on a 90 days in arrears definition. With the benefit of payment holidays, the cumulative defaulted rate accounts for 5.7% of the initial portfolio balance as of the October 2021 payment date, up from 2.2% at last annual review. The transaction benefitted from the repurchase of defaulted loans at the September 2021 payment date, which drove the cumulative recoveries to 16.6% of the cumulative defaulted balance, up from 2.2% at last annual review. Prepayments have been sustained throughout the coronavirus pandemic outbreak: the one-month annualised constant prepayment rate was 27.0% as of the October 2021 payment date and showed an increasing trend.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a review of the portfolio as of the October 2021 payment date and increased its base case PD to 7.5% from 6.0%, given that the observed defaults were above expectations, despite the forbearance measures offered in the context of the coronavirus pandemic. DBRS Morningstar maintained its base case LGD assumption at 90.0%.

CREDIT ENHANCEMENT
The credit enhancement (CE) consists of the subordination of the junior notes and the cash reserve, limited by the outstanding portfolio balance. The CE increased substantially since last annual review as follows:
-- CE to the Class A1 Notes to 62.5%, up from 36.0%,
-- CE to the Class A2 Notes to 62.5%, up from 36.0%,
-- CE to the Class B Notes to 46.9%, up from 26.1%,
-- CE to the Class C Notes to 35.1%, up from 18.8%,
-- CE to the Class D Notes to 26.5%, up from 13.3%,
-- CE to the Class E Notes to 19.5%, up from 8.9%,
-- CE to the Class F Notes to 14.0%, up from 5.5%.

The increases in CE prompted the confirmation and upgrade rating actions.

The repayment of the notes switched to a sequential basis from a pro rata basis since the April 2021 payment date when the aggregated amount of the notes of Classes A1 to F notes reduced to 50% of the issued amount, triggering a Sequential Amortisation Event. However, the Class A1 and A2 notes repayment remains on a pro rata basis regardless.

Citibank, N.A. London Branch (Citibank London) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Citibank 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 ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

NatWest Markets plc (NatWest, previously known as the Royal Bank of Scotland plc) acts as the swap counterparty for the transaction. DBRS Morningstar's Long Term Critical Obligations Rating of NatWest at A (high) 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 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 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.

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 pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology” (8 February 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://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.

A review of the document related to the repurchase of some defaulted loans at the September 2021 payment date was conducted. A review of the 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/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 these ratings include loan-level data provided by Zopa and investor reports provided by Citibank London.

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 6 November 2020, when DBRS Morningstar confirmed its ratings on the Class A1, Class A2, Class B, Class C, Class D, Class E and Class F notes at AAA (sf), AAA (sf), AA (sf), A (high) (sf), A (low) (sf), BBB (high) (sf) and BBB (low) (sf), respectively.

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 ratings, 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 and LGD of the current pool of loans are 7.5% and 90.0%, 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 increased by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if the PD and LGD increased by 50% and 50%, respectively, the rating of the Class A Notes would be expected to remain at AAA (sf).

Class A1 and A2 Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

Class C Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

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

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

Class F Notes Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (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 BB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (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. 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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 5 December 2019

DBRS Ratings Limited
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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 this transaction can be found at: http://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: 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.

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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