DBRS Confirms Ratings on E-CARAT 4 plc

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the Class A and B Notes (the Notes) issued by E-CARAT 4 plc at AAA (sf) and AA (sf), respectively.

The confirmation of the ratings on the Notes is based on the following analytical considerations as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of the September 2016 payment date.
-- Updated default, recovery and loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Class A and B Notes to cover the expected losses at the AAA (sf) and AA (sf) rating level, respectively.

The securitised receivables consist of automotive loans related to motor vehicles, originated and serviced by GMAC UK PLC.

As of the September 2016 payment date, 60-90 days in arrears and the 90+ delinquency ratio as a percentage of the performing receivables balance were at 0.19% and 0.22%, respectively. The current gross cumulative default ratio as a percentage of the original balance is at 0.88%.

As of the September 2016 payment date, credit enhancement to the Class A and B Notes increased to 19.9% and 11.7%, respectively. Credit enhancement to the Class A Notes consists of subordination of the Class B Notes.

The transaction benefits from a Liquidity Reserve equal to 2% of the Notes and amortises to a floor of GBP 200,000. The Liquidity Reserve provides liquidity support and is available to repay principal on the Class B Notes when they can be repaid in full. The Liquidity Reserve is currently at the target level of GBP 3.635 million.

Elavon Financial Services Limited, U.K. Branch acts as Account Bank for this transaction. The DBRS private rating of Elavon Financial Services Limited, U.K. Branch complies with the Minimum Institution Rating given the rating assigned to the Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Lloyds Bank plc is the Swap Counterparty for the transaction. The DBRS Long Term Critical Obligations Rating of Lloyds Bank plc at AA is above the First Rating Threshold as described in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in GBP unless otherwise noted.

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

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

A review of the transaction legal documents was not conducted as the documents have remained unchanged since the most recent rating action.

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

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the 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 action include reports provided by GMAC UK PLC.

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

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating to be 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 19 October 2015, when DBRS confirmed the rating of AAA (sf) and AA (sf) on the Class A and B Notes, respectively.

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

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

-- DBRS expected a lifetime base-case probability of default (PD) and loss given default (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.

-- The base-case PD and LGD of the current pool of loans for the Issuer are 2.02% and 53.00%, respectively.

-- 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 LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

For further information on DBRS 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.

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

Initial Lead Analyst: Alex Garrod
Initial Rating Date: 3 September 2014
Initial Rating Committee Chair: Chuck Weilamann

Lead Surveillance Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Chuck Weilamann, Managing Director

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
-- Unified Interest Rate Model for European Securitisations
-- Derivative Criteria for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrs.com/research/278375.