DBRS Confirms Rating on Securitisation of Catalogue Assets Limited

DBRS Ratings Limited (DBRS) confirmed its A (sf) ratings on the Class A Variable Funding Notes (VFN) issued by Securitisation of Catalogue Assets Limited (SOCA) (the Issuer) following an annual review of the transaction and the execution on 15 December 2017 of the following amendments:

-- The Class A VFN Commitment has increased to GBP 1,325,000,000 from GBP 1,215,000,000;
-- The Class A VFN Margin is reduced to 2.00% from 2.25%;
-- The existing Class B Notes are no longer VFN and have a notional amount equal to GBP 100 million;
-- Issuance of a new Class C of Notes (fixed notional);
-- The revolving period is extended to December 2020 for the Class A VFN and to December 2021 for the Class B Notes and C Notes;
-- The final legal maturity date is extended to November 2026;
-- The concentration limit for Agency Receivables during the revolving period has been reduced to 35% from 60%.

The rating confirmation is also based on the considerations listed below:

-- Portfolio performance with respect to charge-off rates, payment rates and cash yield rates as of October 2017.
-- The available credit enhancement to the Class A VFN.
-- The ability of the transaction structure and triggers to withstand stressed cash flow assumptions and repay the Class A VFN in full in accordance with the terms and conditions of the transaction documents.

PORTFOLIO PERFORMANCE
The Class A VFN notes are backed by a pool of home shopping receivables granted to private individuals originated by Shop Direct Finance Company Limited in the United Kingdom. Based on the performance data (as of October 2017) provided, the monthly payment rate is calculated at 11.09% with the three-month moving average calculated at 9.3%. The cash yield rate is calculated at 19.21% with the three-month moving average calculated at 16.0%. The charge-off rate is calculated at 16.96% and the three-month moving average is calculated at 11.6%. Delinquency rates from one to five months as well as the debt management stock have exhibited a downward trend over the past 12 months.

PORTFOLIO ASSUMPTIONS
The base case portfolio payment rate, charge-off rate and yield rate assumed are 9.00%, 15.50% and 18.00%, respectively. The updated base case portfolio assumptions reflect the stable performance and the reduction in the limit of Agency Receivables to 35% from 60%.

CREDIT ENHANCEMENT
Credit enhancement for the Class A VFN is provided through subordination of the Class B Notes and Class C Notes and overcollaterisation. Credit enhancement for the Class A VFN is equal to 28.00%. The newly issued Class C Notes are paid interest and principal in a subordinated position to the Class A VFN and Class B Notes interest and principal payments. The transaction also benefits from a liquidity reserve. The liquidity reserve target balance is linked to the weighted-average coupon of the Class A VFN, Class B Notes and Class C Notes. Following the amendment, the current liquidity reserve amount is equal to GBP 7,163,073.

The Royal Bank of Scotland plc (RBS) is in place as the Account Bank. The Account Bank reference rating of A (low), which is one notch below the DBRS public Long-Term Critical Obligations Rating of RBS of “A”, complies with the Minimum Institution Rating in accordance with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, given the rating assigned to the Class A VFN.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the rating is “Rating European Consumer and Commercial Asset-Backed Securitisations.”

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. Because of 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.

DBRS has conducted a review of the transaction amendments executed on 15 December 2017. A review of any other 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf

The sources of data and information used for this rating include performance data and monthly reports provided by Shop Direct Finance Company Limited through the arranger (HSBC Bank plc). DBRS received monthly dynamic historical performance data on balance, payment, loss and recovery data divided by aging and pool composition relating to originations.

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

At the time of the initial rating DBRS was not 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 4 November 2016, when the rating on the Class A VFN was confirmed at A (sf).

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”):

-- Charge-Off Rate Used: Base case of 15.50%, a 25% and 50% increase on the base case.
-- Principal Payment Rate Used: Base case of 9.00%, a 25% and 50% decrease of the base case.
-- Yield Rate Used: Base Case of 18.00%, a 25% and 50% decrease on the base case.

DBRS concludes that for the Class A VFN:

-- Whilst holding the Payment Rate constant, a hypothetical increase of the base case Charge-Off Rate by 25% and a hypothetical decrease of the base case Yield Rate by 25%, ceteris paribus, would result in a downgrade of the Class A VFN to BBB (high) (sf).
-- Whilst holding the Payment Rate constant, a hypothetical increase of the base case Charge-Off Rate by 50% and a hypothetical decrease of the base case Yield Rate by 50%, ceteris paribus, would result in a downgrade of the Class A VFN to BB (high) (sf).
-- Whilst holding the Charge-Off Rate constant, a hypothetical decrease of the base case Payment Rate by 25% and a hypothetical decrease of the base case Yield Rate by 25%, ceteris paribus, would result in a downgrade of the Class A VFN to BBB (high) (sf).
-- Whilst holding the Charge-Off Rate constant, a hypothetical decrease of the base case Payment Rate by 50% and a hypothetical decrease of the base case Yield Rate by 50%, ceteris paribus, would result in a downgrade of the Class A VFN to BB (low) (sf).
-- Whilst holding the Yield Rate constant, a hypothetical decrease of the base case Payment Rate by 25% and a hypothetical increase of the base case Charge-Off Rate by 25%, ceteris paribus, would result in a downgrade of the Class A VFN to BBB (high) (sf).
-- Whilst holding the Yield Rate constant, a hypothetical decrease of the base case Payment Rate by 50% and a hypothetical increase of the base case Charge-Off Rate by 50%, ceteris paribus, would result in a downgrade of the Class A VFN to BB (low) (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: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Erin Stafford, Managing Director
Initial Rating Date: 25 November 2013

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

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.