Press Release

DBRS Morningstar Confirms Ratings on Securitisation of Catalogue Assets Limited Following Amendment

Consumer Loans & Credit Cards

December 14, 2021

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the notes (the Rated Notes) issued by Securitisation of Catalogue Assets Limited (the Issuer), as follows:

-- Class A-S Variable Funding Notes (Class A-S VFN) at AAA (sf)
-- Class A-J Variable Funding Notes (Class A-J VFN) at A (sf)

The ratings on the Class A-S VFN and Class A-J VFN address the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.

The transaction is a securitisation of home shopping receivables granted to private individuals by Shop Direct Finance Company Limited (Shop Direct) in the United Kingdom.

The confirmations follow amendments to the transaction effective on 14 December 2021 and which include:
-- An extension of the Class A-S VFN, Class A-J VFN, Class B Notes, and Class C1 Notes’ End Dates to 1 January 2025 from 31 December 2023; and
-- An extension of the legal final maturity date to 13 December 2031 from 13 December 2030.

The Class C2 Notes’ End Date remains on 31 December 2023, constraining the end of the revolving period on 31 December 2023. DBRS Morningstar does not rate the Class B, the Class C1, and the Class C2 Notes.

The confirmations also follow an annual review of the transaction and are based on the following analytical considerations:
-- No revolving termination events have occurred.
-- Portfolio performance, in terms of charge-off rates, payment rates, and yield rates, as of the October 2021 payment date;
-- Available credit enhancement to the Rated Notes to cover the expected losses at their respective rating levels;
-- The ability of the transaction structure and triggers to withstand stressed cash flow assumptions and repay the Rated Notes in full and in accordance with the terms and conditions of the transaction documents.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

PORTFOLIO PERFORMANCE
As of the October 2021 payment date, the monthly payment rate was 10.2% and the three-month moving average was 11.3%. The delinquency ratio was 7.4% and the five-month delinquency ratio was 2.5%. As of the payment date, the three-month moving average portfolio default rate was 0.4% and the annualised charge-off rate was 6.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar considered the historical performance of the transaction and the product weightings applicable to the portfolio to assess its asset and portfolio assumptions. The base case charge-off, payment rate, and yield assumptions were maintained at 15.5%, 9.0%, and 18.0%, respectively. These assumptions also incorporate DBRS Morningstar’s view on the performance deterioration due to the Coronavirus Disease (COVID-19) pandemic.

CREDIT ENHANCEMENT
The maximum advance rates available to the Class A-S VFN and Class A-J VFN are 64.0% and 73.0%, respectively, representing credit enhancement, excluding the liquidity reserve, of 36.0% and 27.0%, respectively.

The liquidity reserve target balance is calculated based on the aggregation of amounts calculated for each class of notes. These class-specific amounts consider the sum of the total margin for each class of rated notes, Sonia along with a spread adjustment plus 2.0% and a further 1.0%, which are then multiplied by the applicable commitment amounts (or if zero, the applicable balance of the rated notes). These amounts are then calculated to cover three payment dates for the Class A-S VFN and one payment date for the other classes of 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-S VFN, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in its proprietary cash flow engine.

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 ABS transactions, some meaningfully. 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 9 December 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/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update 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: https://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 transaction, the analysis continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

DBRS Morningstar has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment. A review of any transaction legal documents outside the scope of the amendment was not conducted as those legal documents 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 performance data and monthly reports provided by Shop Direct through HSBC, the arranger.

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 22 December 2020, when DBRS Morningstar confirmed its ratings on Class A-S VFN and Class A-J VFN at AAA (sf) and A (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 ratings (the Base Case):
-- Base Case Charge-Off Rate: 15.5%
-- Base Case MPPR: 9.0%
-- Base Case Yield Rate: 18.0%

Scenario 1: A 25% decrease in the expected Principal Payment Rate.
Scenario 2: A 25% increase in the expected Charge-Off Rate.
Scenario 3: A 25% decrease in the expected Yield Rate.
Scenario 4: A 15% increase in the expected Charge-Off Rate, 15% decrease in the expected principal payment rate and 15% decrease in the expected yield rate.

DBRS Morningstar concludes that the expected ratings on the notes under the four stress scenarios are:
Class A-S VFN: AAA (sf), AAA (sf), AAA (sf), AA (sf)
Class A-J VFN: A (sf), A (sf), BBB (high) (sf), BBB (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: 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: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 November 2013

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: 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.

Download This Press Release