DBRS Morningstar upgraded the following ratings on the bonds issued by
Class
Class
Class
DBRS Morningstar also discontinued its rating on the Class A Notes, following their full repayment on the
The rating on the Class
The upgrades 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
Lifetime portfolio default rates, recovery rates, 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 cash flow securitisation collateralised by a portfolio of term loans and originated through the
The notes switched from a pro rata amortisation to a sequential amortisation on the payment date in
PORTFOLIO PERFORMANCE
As of the
The forbearance measures introduced by Funding Circle combined with the support of government loans granted to the borrowers over the past year improved the collections on the portfolio by preventing the delinquent loans from further migrating into the delinquency buckets as well as reducing the portion of the portfolio more than three months in arrears, which is considered by the transaction definition as defaulted.
As of the
PORTFOLIO ASSUMPTIONS AND
DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has decreased its base case one-year weighted-average probability of default (PD) assumption since the last annual review to 9.3% from 20.3%, leading to a decrease in the lifetime portfolio default rate to 16.5% from 29.8%. As per DBRS Morningstar's assessment, 8.5% and 23.5% of the outstanding portfolio balance belonged to industries classified in mid-high and high risk economic sectors, respectively, which leads to the underlying one-year probability of defaults to be multiplied by 1.5 and 2.0, respectively. The substantial decrease is mainly driven by the removal of stresses on loans in various delinquency buckets given the cure of the delinquencies observed since the last annual review. DBRS Morningstar maintained its base case recovery rate assumption at 0% and 15.4% at the
CREDIT ENHANCEMENT
The credit enhancement (CE) consists of overcollateralisation from the portfolio and is calculated on the non-defaulted outstanding portfolio balance. As of the
CE to the Class
CE to the Class
CE to the Class
The cash reserve is amortising, capped at 2.75% of the initial portfolio balance and available to cover senior fees and interest on the rated notes and principal losses via the principal deficiency ledgers (PDLs) on each rated note. As of the
A liquidity reserve provides additional liquidity support to the transactions to cover senior fees and interest on the most senior class of the rated notes. As of the
DBRS Morningstar analysed the structure of each transaction 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 SME 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.
For this transaction, DBRS Morningstar applied a 1.5 or a 2.0 adjustment factor on the underlying one-year probability of defaults for obligors in mid-high or high risk industries based on their perceived exposure to the adverse disruptions of the coronavirus.
The DBRS
On
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 'Rating CLOs Backed by Loans to European SMEs' (28 June 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 surveillance section of the principal methodology.
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/381451/global-methodology-for-rating-sovereign-governments.
The DBRS
The sources of data and information used for these ratings include investor reports provided by Citibank London and loan-level data provided by Funding Circle.
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
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):
Probability of Default (PD) Rates Used: base case one-year weighted average PD of 9.3%; a 10% and 20% increase in base case PD.
Recovery Rates Used: a base case recovery rate of 0.0% and 15.4% at the
Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would each lead to a confirmation of the Class
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would each lead to a confirmation of the Class
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the base case recovery rate by 20%, ceteris paribus, would each lead to a confirmation of the Class
For further information on DBRS Morningstar historical default rates published by the
These ratings are endorsed by
Lead Analyst:
Rating Committee Chair:
Initial Rating Date:
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
Rating CLOs Backed by Loans to European SMEs (
https://www.dbrsmorningstar.com/research/380640/rating-clos-backed-by-loans-to-european-smes
Master European Structured Finance Surveillance Methodology (8 February 2021),
https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology
Cash Flow Assumptions for Corporate Credit Securitizations (8 February 2021),
https://www.dbrsmorningstar.com/research/373422/cash-flow-assumptions-for-corporate-credit-securitizations
Interest Rate Stresses for European Structured Finance Transactions (
Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-for-european-structured-finance-transactions
Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions
Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers
DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
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.
Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
08-Oct-21 ClassB Notes Upgraded AAA (sf) --UK
E
08-Oct-21 ClassC Notes Upgraded AAA (sf) --UK
E
08-Oct-21 ClassD Notes Upgraded AA (high) (sf) --UK
E
08-Oct-21 Class A Notes Disc.-Repaid Discontinued --UK
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