DBRS Takes Rating Actions on the Notes Issued by E-CARAT 4 plc

DBRS Ratings Limited (DBRS) took the following rating actions on the Notes issued by E-CARAT 4 plc (the Issuer):
-- Class A Notes confirmed at AAA (sf),
-- Class B Notes upgraded to AAA (sf) from AA (sf).

The rating actions follow an annual review of the transaction and are based on the following analytical considerations, as described more fully below:

-- Portfolio performance, in terms of delinquencies and defaults, as of September 2017;
-- Portfolio default (PD) rate, loss given default (LGD) rate and expected loss assumptions for the outstanding collateral portfolio; and
-- The current credit enhancement (CE) available to the Class A and Class B Notes to cover the expected losses at the AAA (sf) rating level.

The ratings on the Class A and Class B Notes address the timely payment of interest and ultimate payment of principal payable on or before the Final Maturity Date in September 2022.

E-CARAT 4 plc is a securitisation of a portfolio of UK auto loan receivables granted by GMAC UK plc (GMAC) to retail and commercial customers secured by new and used vehicles. The receivables arise under fixed interest rate agreements, and all contracts are conditional sale in nature. The portfolio is serviced by GMAC.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS’s expectations. As of September 2017, the receivables more than 90 days delinquent accounted for 0.34% of the outstanding collateral portfolio balance, up from 0.22% in September 2016. Cumulative defaulted receivables as a percentage of the initial portfolio balance is at 2.19%, up from 0.89% in September 2016.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis on the outstanding portfolio of receivables and updated the PD and LGD assumptions on the outstanding collateral portfolio to 3.83% and 52.68%, respectively.

CREDIT ENHANCEMENT
As of September 2017, credit enhancement to the Class A and Class B Notes was 46.49% and 27.38%, respectively, up from 8.50% and 5.01% at closing. Credit enhancement to the notes is provided by the overcollateralisation provided by the outstanding collateral portfolio. The Liquidity Reserve, which is available to pay senior fees and expenses and missed interest on the Class A and Class B Notes, is currently at its target level of GBP 1.28 million (2% of the outstanding balance of the Class A and Class B Notes).

Elavon Financial Services DAC, UK Branch is the Account Bank for the transaction. The DBRS private rating on the Account Bank complies with the Minimum Institution Rating, given the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Lloyds Bank plc is the Swap Counterparty of the transaction and its DBRS reference rating is above the First Rating Threshold for a Swap Counterparty, as described in DBRS’s “Derivative 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: “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 legal 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 data and information used for these ratings include Monthly Calculation Reports provided by GMAC and loan-by-loan data from the European DataWarehouse GmbH.

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 19 October 2016, when DBRS confirmed the Class A and the Class B Notes at AAA (sf) and at AA (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Ilaria Maschietto.

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 to the parameters used to determine the rating (the “Base Case”):

-- DBRS expected a lifetime base-case PD and 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 receivables for the Issuer are 3.83% and 52.68% for the Class A and Class B Notes.
-- 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 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)

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 and US regulations only.

Lead Analyst: Ilaria Maschietto, Senior Financial Analyst
Rating Committee Chair: Vito Natale, Head of EU RMBS & CBs
Initial Rating Date: 3 September 2014

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

-- Unified Interest Rate Model for European Securitisations
-- 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
-- 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