Press Release

DBRS Morningstar Confirms Ratings of Auto ABS UK Loans plc and Auto ABS UK Loans 2019 Plc

Auto

November 26, 2021

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings of the notes issued by Auto ABS UK Loans plc (Auto ABS UK) and Auto ABS UK Loans 2019 plc (Auto ABS UK 2019) as follows:

Auto ABS UK:
-- Class A2a Notes at AAA (sf)
-- Class A3a Notes at AAA (sf)

Auto ABS UK 2019:
-- Class A Notes at AAA (sf)

The ratings of the Class A2a, Class A3a, and Class A Notes (together, the Rated Notes) address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity dates.

The confirmations follow an annual review of the transactions 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 receivables;
-- Current available credit enhancement to the Rated Notes to cover the expected losses at the AAA (sf) rating level;
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic; and
-- No revolving period termination events have occurred.

Auto ABS UK and Auto ABS UK 2019 are securitisations of auto loans originated and serviced by PSA Finance UK Limited (PSA Finance) granted to borrowers in England, Wales, Scotland, and Northern Ireland. The pools consist of personal contract purchase loans and conditional sale loans granted for the purchase of new and used vehicles. Auto ABS UK is currently in its 24-month revolving period that is scheduled to terminate in November 2022. Auto ABS UK 2019 initially had a 12-month revolving period that terminated in December 2020.

PORTFOLIO PERFORMANCE
As of the October 2021 payment date, loans two to three months in arrears and loans more than three months in arrears represented 0.1% and 0.0% of the outstanding portfolio balance, respectively, for Auto ABS UK. Loans two to three months in arrears and loans more than three months in arrears both represented 0.0% of the outstanding portfolio balance for Auto ABS UK 2019. As of the October 2021 payment date, the cumulative default ratio was 0.5% for both transactions.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the receivables and updated its expected PD, LGD, and residual value (RV) haircut assumptions as follows:
-- Auto ABS UK: expected PD of 3.7%, expected LGD of 56.4% at AAA (sf), RV haircut of 44.5% at AAA (sf).
-- Auto ABS UK 2019: expected PD of 3.4%, expected LGD of 56.6% at AAA (sf), RV Haircut of 44.5% at AAA (sf).

DBRS Morningstar’s assumptions for Auto ABS UK are based on the worst-case portfolio composition, given that the transaction is in its revolving period. DBRS Morningstar’s assumptions for Auto ABS UK 2019 are based on the current portfolio composition following the end of the revolving period in December 2020.

CREDIT ENHANCEMENT
Credit enhancement to the Rated Notes is provided by subordination of the junior notes. As of the October 2021 payment date, credit enhancement to the Auto ABS UK Class A2a and Class A3a Notes remained stable at 20.2% because of the revolving period. Credit enhancement to the Auto ABS UK 2019 Class A Notes was 33.9%, up from 20.5% at the time of the initial rating. The increase in credit enhancement is driven by the amortisation of the Class A Notes following the end of the revolving period in December 2020.

Both transactions benefit from a general reserve fund (GRF), which covers senior fees and interest shortfall on the Rated Notes. The Auto ABS UK GRF is funded to its target level of GBP 15.6 million (1.7% of the aggregate Class A Notes balance). The Auto ABS UK 2019 GRF is funded to its target level of GBP 3.0 million (1.5% of the initial balance of the Class A Notes).

Santander UK plc (Santander) acts as the account bank for both transactions. Based on DBRS Morningstar’s private rating of Santander, 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 Rated Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA, London Branch (Banco Santander) acts as the swap counterparty for both transactions, while Lloyds Bank Corporate Markets plc (Lloyds) and Wells Fargo Securities International Limited (Wells Fargo) also act as swap counterparties for Auto ABS UK. DBRS Morningstar's private ratings of Banco Santander, Lloyds, and Wells Fargo are 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 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 structured finance 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: https://www.dbrsmorningstar.com/research/387320/european-auto-abs-recovery-performance-update and https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 the “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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the Auto ABS UK transaction, the analysis considers potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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 investor reports provided by BNP Paribas Securities Services SCA/London and performance data provided by PSA Finance.

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 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 Auto ABS UK took place on 27 November 2020, when DBRS Morningstar assigned a rating of AAA (sf) to the Class A2a and Class A3a Notes and discontinued its ratings of the Class A3b and Class A4a Notes.

The last rating action on Auto ABS UK 2019 took place on 26 November 2020, when DBRS Morningstar confirmed its rating of the Class A Notes at AAA (sf).

The lead analyst responsibilities for Auto ABS UK have been transferred to Clare Wootton.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available at 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 and LGD for the pool based on a review of the assets, as well as an RV Haircut. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.

-- Auto ABS UK: expected PD of 3.7%, expected LGD of 56.4% at AAA; RV Haircut of 44.5% at AAA;
-- Auto ABS UK Loans: expected PD of 3.4%, expected LGD of 56.6% at AAA; RV Haircut of 44.5% at AAA.

Auto ABS UK – Class A2a and Class A3a Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (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 (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Auto ABS UK 2019 – Class A Notes Risk 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 AA (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: 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: Clare Wootton, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Auto ABS UK Initial Rating Date: 29 April 2016
Auto ABS UK 2019 Initial Rating Date: 8 November 2019

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor
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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