DBRS Assigns Rating to Temese Funding 2 PLC

DBRS Ratings Limited (DBRS) has today assigned a rating of AAA (sf) to the issuance of further Class A Notes (New Class A Notes) and confirmed the AAA (sf) rating of the existing Class A Notes issued by Temese Funding 2 PLC (the Issuer). The New Class A Notes rank pro rata and pari passu to the existing Class A Notes.

The rating actions follow an amendment of the transaction documentation and the purchase of an additional collateral portfolio funded via the issuance of the New Class A Notes, New Class B Notes and New Class C Notes (together, the New Notes), which are intended to become fully fungible with the existing Class A Notes, Class B Notes and Class C Notes (together, the Existing Notes).
At issuance, each class of New Notes will be represented by a Temporary Global Note with an associated temporary ISIN. DBRS expects each Temporary Global Note to be exchanged for a Permanent Global Note with the same ISIN as the Existing Notes on a date 40 days after the New Notes Issue Date, in accordance with the transaction documents. After the exchange, each class of New Notes will form a single consolidated series with the relevant class of the Existing Notes.

Upon exchange of the Temporary Global Note for the Permanent Global Note, DBRS intends to discontinue and withdraw the rating on the New Class A Notes and to confirm the rating on the existing Class A Notes.

The Issuer is a securitisation of equipment lease receivables originated in the United Kingdom by Investec Asset Finance (IAF) and its affiliate CF Corporate Finance (CFCF). The portfolio includes fixed-term agreements, minimum-term agreements, hire purchase and commercial loans. The portfolio is serviced by IAF.

The purchase of the initial portfolio was funded via the issuance of the Class A and Class B Notes, with the Class C Notes being used to establish a Reserve Fund, a Yield Reduction Contingency Reserve, a Contingency Reserve, a Staged Payments Reserve and initial issuance costs. Following the amendment, the total Class A Notes outstanding (new and existing) increased to GBP 520,000,000, the total Class B Notes increased to GBP 130,000,000 and the total Class C Notes increased to GBP 5,400,053. Credit enhancement to the Class A Notes increased to 21.3% from 18.3 at the time of DBRS’s initial rating.

The amendment extends the prefunding and revolving period (six-month prefunding period and a four-year revolving period) to 2021. The transaction documents incorporate eligibility criteria that must be complied with during the prefunding and revolving period. DBRS has stressed the portfolio in accordance with the replenishment and substitution conditions to assess the worst case the portfolio characteristics can migrate to.

HSBC Bank PLC acts as Account Bank for the transaction. The DBRS private rating of HSBC Bank PLC complies with DBRS’s Minimum Institution Rating, given the rating assigned to the New Class A Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in British pounds unless otherwise noted.

The principal methodology applicable to the rating 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

A review of the transaction legal documents has been conducted as the legal documents have been amended 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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” at: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of data and information used for this rating includes information provided by IAF.

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

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

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

DBRS 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 17 October 2016, when DBRS confirmed the rating of AAA (sf) on the Class A Notes.

The rating of the New Class A Notes concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies is available at 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 4.07% and 68.70%, 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 New Class A Notes and existing 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 New Class A Notes and existing 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 New Class A Notes and existing Class A Notes would be expected to fall to AA (high) (sf).

New Class A Notes and existing 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 AA (high) (sf).

For further information on DBRS historic 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.

Lead Analyst: Alessio Pignataro, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 14 November 2014

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The rating methodologies 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
-- Operational Risk Assessment for European Structured Finance Originators
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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.