Press Release

DBRS Morningstar Confirms Ratings on Auto ABS UK Loans plc

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November 25, 2022

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) ratings on the Class A2a and Class A3a Notes (together, the Class A notes) issued by Auto ABS UK Loans plc (the Issuer).

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

The confirmations 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 2022 payment date;
-- Probability of default (PD), loss given default (LGD), residual value (RV) haircut, and expected loss assumptions on the receivables;
-- Current available credit enhancements to the Class A Notes to cover the expected losses at the AAA (sf) rating level; and
-- No revolving period termination events have occurred.

The transaction is a securitisation of auto loans originated and serviced by PSA Finance UK Limited (PSA Finance), and granted to private individuals or sole traders in England, Wales, Scotland, and Northern Ireland. The asset portfolio consists of personal contract purchase loans and conditional sale loans granted for the purchase of new and used vehicles. The transaction has a 24-month revolving period that is scheduled to terminate in November 2022.

PORTFOLIO PERFORMANCE
As of the October 2022 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. The cumulative default ratio was 0.3%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the receivables based on the worst-case portfolio composition given the transaction revolving period, and maintained its assumptions as follows:

-- Expected PD of 3.7%;
-- Expected recovery rate (RR) of 72.3%;
-- LGD of 56.4% at AAA (sf); and
-- RV haircut of 44.5% at AAA (sf).

CREDIT ENHANCEMENT
Credit enhancement to the Class A notes is provided by subordination of the junior notes. As of the October 2022 payment date, credit enhancement to the Class A notes remained stable at 20.2% because of the revolving period.

The transaction benefits from a general reserve fund (GRF), funded to its target level of GBP 15.6 million (1.7% of the aggregate balance on the Class A notes), which covers senior fees and any interest shortfall on the Class A notes.

Santander UK PLC (Santander) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on 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 rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA, London Branch (Banco Santander), Lloyds Bank Corporate Markets plc (Lloyds), and Wells Fargo Securities International Limited (Wells Fargo) act as the swap counterparties for the transaction. DBRS Morningstar's private ratings of Banco Santander, Lloyds, and Wells Fargo are consistent with the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant impact on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022).

DBRS Morningstar analysed the transaction structure 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” (19 May 2022).

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, 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 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/401817/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 this transaction took place on 26 November 2021, when DBRS Morningstar confirmed its ratings on the Class A2a and the Class A3a Notes at AAA (sf), respectively.

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 at www.dbrsmorningstar.com.

Sensitivity Analysis: 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.

-- Expected PD at B (low) of 3.7%;
-- Expected RR at B (low) of 72.3%;
-- Expected LGD of 56.4% at AAA; and
-- RV haircut of 44.5% at AAA.

-- 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 PD and LGD increases by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the PD or LGD. Furthermore, if the PD, LGD, and RV haircut all increase by 50%, the rating of the Class A Notes would be expected to fall to A (high) (sf).

Class A2a and Class A3a Notes Risk Sensitivity: -- 25% increase in PD and LGD, expected rating of AA (high) (sf) -- 50% increase in PD and LGD, expected rating of AA (sf) -- 25% increase in RV haircut, expected rating of AA (high) (sf) -- 50% increase in RV haircut, expected rating of AA (sf) -- 25% increase in PD, LGD, and RV haircut, expected rating of AA (sf) -- 25% increase in PD and LGD, and 50% increase in RV haircut, expected rating of AA (low) (sf) -- 50% increase in PD and LGD, and 25% increase in RV haircut, expected rating of AA (low) (sf) -- 50% increase in PD, LGD, and RV haircut, expected rating of A (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: Natalia Coman, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 27 November 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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