DBRS Confirms HCUK Auto Funding Ltd Variable Funding Note at AAA (sf)

DBRS Ratings Limited (DBRS) has reviewed the HCUK Auto Funding Ltd transaction and has today taken the following rating action:

-- Variable Funding Note, confirmed at AAA (sf)

The rating actions are based upon the following analytical considerations:

-- Portfolio performance of the receivables in terms of arrears and cumulative net losses as of the December 2014 payment date.
-- Current available credit enhancement for the Variable Funding Note to cover the expected losses.

The portfolio consists of a pool of auto loan receivables, which include conditional sale and personal contract purchase finance agreements with retail and commercial customers secured by new and used vehicles. The transaction has a two-year revolving period, which is scheduled to end in January 2016. While revolving, collections from the receivables can be used to fund the purchase of additional receivables, subject to certain eligibility and performance criteria.

The structure includes a single Variable Funding Note (VFN) with a purchase commitment equal to GBP 300,000,000. The initial VFN credit support of 30.00% includes overcollateralization. Additionally, the structure includes a dynamic reserve fund of 1.00% of the outstanding VFN, with a floor of GBP 1,500,000, which provides liquidity support during the two-year revolving period and the amortisation period.

As of the 29 December 2014 payment date, the current 90+ delinquency ratio was 0.05% and cumulative defaults was 0.04%. The portfolio is performing within DBRS expectations and the available credit enhancement is sufficient to cover DBRS expected losses at the current rating levels.

The account bank for this transactions is Santander UK plc. The DBRS private rating of Santander UK plc complies with the threshold for the account bank, given the rating assigned to the VFN, as described in the DBRS Legal Criteria for European Structured Finance Transactions.

As no hedging arrangement has been incorporated into the transaction structure, the issuer is therefore subject to interest rate risk, as assets are subject to fixed rates of interest, whilst liabilities are floating in nature. This risk is partially mitigated by a minimum weighted-average spread trigger that considers the weighted-average annual interest rate of the eligible receivables, the senior costs for the transaction and the current GBP LIBOR plus margin. Should this weighted-average spread fall below 1.0%, an early amortisation event will occur.

Notes:
All figures are in GBP unless otherwise noted.

The principal methodology applicable is the Master European Structured Finance Surveillance Methodology.

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

This can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

The sources of information used for this rating include monthly investor reports provided by Hyundai Capital UK Limited.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 27 January 2014, when DBRS assigned the final rating of AAA (sf) to the Variable Funding Notes.

Information regarding DBRS ratings, including definitions, policies and methodologies, are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

• Probability of Default Rate Used: Base Case PD of 2.17%, a 25% and 50% increase on the base case PD.
• Recovery Rate Used: Base Case Recovery Rate of 58.0%.
• Residual Value Loss: Base Case of 40.5%, a 25% and 50% increase in Residual Value Loss.

DBRS concludes that for the VFN:
• A hypothetical increase of the base case PD by 25% or 50%, ceteris paribus, would lead to the VFN maintaining a AAA (sf) rating.
• A hypothetical increase of the base case Residual Value Loss by 25%, ceteris paribus, would lead to the VFN maintaining a AAA (sf) rating.
• A hypothetical increase of the base case Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the VFN to AA (high) (sf).
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to the VFN maintaining a AAA (sf) rating.
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the Residual Value Loss by 25%, ceteris paribus, would lead to the VFN maintaining a AAA (sf) rating.
• A hypothetical increase of the base case PD by 25% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the VFN to AA (high) (sf).
• A hypothetical increase of the base case PD by 50% and a hypothetical increase of the Residual Value Loss by 50%, ceteris paribus, would lead to a downgrade of the VFN to AA (high) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Alexander Garrod
Initial Rating Date: January 27, 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Vito Natale
Rating Committee Chair: Chuck Weilamann

DBRS Ratings Limited
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The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

Legal Criteria for European Structured Finance Transactions.
Master European Structured Finance Surveillance Methodology.
Operational Risk Assessment for European Structured Finance Servicers.
Rating European Consumer and Commercial Asset-Backed Securitisations.