Press Release

DBRS Morningstar Confirms Credit Ratings on BFS Funding I Limited

Other

October 27, 2023

DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (sf) credit ratings on the Euro Variable Funding Note, the Sterling Variable Funding Note, and the U.S. Dollar Variable Funding Note (together, the VFNs) issued by BFS Funding I Limited (the Issuer).

The transaction is a securitisation collateralised by a portfolio of trade receivables granted by Bibby Financial Services Limited's (BFS) subsidiaries. Bibby Invoice Finance UK Limited (BIF UK) acts as the master servicer and the master seller of the trade receivables portfolio.

The Issuer acquired the trade receivables through the issuance of VFNs in British pound sterling, euros, and U.S. dollars (together, the approved currencies) purchased directly by Bayerische Landesbank or Barclays Bank PLC (Barclays), or indirectly by HSBC Bank plc and Lloyds Bank plc via their conduits in Regency Assets DAC and Gresham Receivables (No. 37) UK Limited, respectively.

The aggregate funding commitment is equal to an equivalent of GBP 750 million.

Subordinated loans in the approved currencies provided by BIF UK and proceeds from the Mezzanine B and Mezzanine C Notes in British pound sterling help to finance the purchase of the portfolio.

The transaction originally closed in October 2015 and has been in its revolving period since. The transaction is currently in its revolving period ending on 27 October 2025, provided that no amortisation event or Issuer event of default occurs. The legal final maturity date is one year after the end of the revolving period (i.e., on 27 October 2026 at the latest).

The confirmations are based on the following analytical considerations:
-- Portfolio performance of the transaction, in terms of delinquencies, defaults, dilutions, and days sales outstanding, as of 30 September 2023;
-- Current sizing of the reserves sufficient to withstand stresses at the AA (sf) credit rating level;
-- No early amortisation events.

PORTFOLIO PERFORMANCE
As of 30 September 2023, the gross receivables balance was equivalent to GBP 1.0 billion and the three-month average delinquency ratio, default ratio, dilution ratio, and days sales outstanding were 9.4%, 2.4%, 2.9%, and 42.5 days, respectively, below their respective trigger levels of 18.5%, 3.5%, 6.0%, and 70.0 days, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar evaluates the adequacy of available credit enhancement through compliance with transaction definitions of the loss reserve, the dilution reserve, and the carrying cost reserve as well as the level of factors incorporated in these definitions. The loss and dilution stress factors expected at the AA (sf) credit rating level are 2.25. In June 2023, an amendment to the transaction included the increase in the maximum concentration of receivables related to borrowers in the construction sector to 25.0% from 20.0%. However, the increase in industry concentration risk is mitigated by the dynamic adjustments of the various reserves.

CREDIT ENHANCEMENT
Credit enhancement is provided by the subordination of the Mezzanine B and Mezzanine C Notes, the subordinated loan, and overcollateralisation in the form of various reserves. DBRS Morningstar’s calculation takes into account the portfolio’s gross receivables balance as well as the available cash held in the Issuer’s accounts. As of 30 September 2023, the credit enhancement to the VFNs was 58.1% and the required reserve percentage was 38.2%.

Barclays acts as the account bank for the transaction. Based on the account bank reference rating of A (high) on Barclays (which is one notch below its DBRS Morningstar public Long Term Critical Obligations Rating of AA (low)), 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 credit ratings assigned to the VFNs, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the VFNs address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology” (22 October 2023), https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the eligibility criteria and maximum potential borrowing set forth in the transaction legal documents.

DBRS Morningstar conducted a review of the transaction legal documents received in the context of the aforementioned amendment. A review of any 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 credit 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/421590.

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.

The sources of data and information used for these credit ratings include monthly reports, a foreign exchange model, and a credit enhancement model provided by BIF UK.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit ratings, DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 27 October 2022, when DBRS Morningstar confirmed its credit ratings on all VFNs at AA (sf).

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):
-- DBRS Morningstar expected loss stress factor and a dilution stress factor commensurate with the credit rating level as per the standards described in its “Rating European Trade Receivables Securitisation Transactions” methodology. Changes in the transaction documents with respect to the loss stress factor and the dilution stress factor can have a direct impact on the credit ratings on the VFNs.
-- The loss and dilution stress factors expected at the AA (sf) rating level are 2.25.

VFNs Risk Sensitivity:
-- A decrease of the loss stress factor and the dilution stress factor to 2.00 from 2.25, expected credit rating of A (sf)
-- A decrease of the loss stress factor and the dilution stress factor to 1.75 from 2.25, expected credit 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://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit 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: 23 October 2015

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
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The credit 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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