DBRS Finalises Provisional Ratings of Bumper UK 2019-1

DBRS Ratings Limited (DBRS) finalised its provisional ratings on the following bonds issued by Bumper UK 2019-1 Finance Plc (the Issuer):

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)

DBRS does not rate the Class C Notes also issued in this transaction.

This transaction represents the issuance of notes backed by a revolving pool of receivables, balloon payment receivables and residual value (RV) claims related to auto lease agreements granted by LeasePlan UK Limited (LPUK or the originator) to corporate, small and medium-sized enterprises (SME), retail and public-sector clients in England and Wales. The portfolio is serviced by LPUK (the servicer).

The transaction benefits from a one-year revolving period, during which the originator may sell additional receivables, balloon payment receivables and their related RV claims, subject to eligibility criteria, concentration limits, performance triggers and other conditions set out in the transaction documents.

The transaction represents a further securitisation transaction backed by auto lease agreements through European branches or subsidiaries of LeasePlan Corporation N.V. in Europe. DBRS has previously assigned ratings to other LPC-sponsored transactions in the Netherlands, France and Germany.

The ratings are based on DBRS’s review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement in all available forms.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- LPUK’s capabilities with respect to originations, underwriting and servicing.
-- An operational risk review of LPUK, which DBRS deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The sovereign rating of the United Kingdom of Great Britain and Northern Ireland, currently rated AAA with a Stable trend by DBRS.
-- The consistency of the transaction’s legal structure with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the Issuer with the seller.

The transaction structure was analysed in Intex DealMaker.

The bonds are indexed to SONIA, which is compounded daily. The transaction benefits from an interest rate swap with a floating leg that, unlike the bonds, is not floored. DBRS has addressed the risk of negative SONIA rates by applying its “Interest Rate Stresses for European Structured Finance Transactions” methodology. The downward interest rate stresses were further adjusted considering the historical difference between LIBOR and SONIA (SONIA typically trading below LIBOR).

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

The principal methodology applicable to the ratings 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.

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.

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

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: https://www.dbrs.com/research/333487/rating-sovereign-governments.

The sources of data and information used for the ratings include the originator, LPUK, and LeasePlan Corporation N.V., as the transaction arranger.

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 the ratings to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concern a newly issued financial instrument. These are the first DBRS ratings on this financial instrument.

This is the first rating action since the Initial Rating Date.

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”):

-- Probability of Default (PD) Rates Used: Expected Default Rate of 3.1%, a 25% and 50% increase on the Expected Default Rate.
-- Recovery Rates Used: Recovery Rate of 45% at the AAA stress level and 47% at the AA (high) stress level
-- Residual Loss: RV Haircut of 40% at the AAA stress level and 37% at the AA (high) stress level, a 25% and 50% increase on the RV Losses.

DBRS concludes that:
-- a hypothetical increase of the Expected Default rate by 25% or a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would not lead to a change of the rating of the Class A Notes.
-- a hypothetical increase of the Expected Default rate by 50% or a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- a hypothetical increase of the Expected Default rate by 25% and a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (high) (sf).
-- a hypothetical increase of the Expected Default rate by 25% and a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 50% and a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 50% or a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 25% or a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 50% or a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 25% and a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to AA (sf).
-- a hypothetical increase of the Expected Default rate by 25% and a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to AA (low) (sf).
-- a hypothetical increase of the Expected Default rate by 50% and a hypothetical increase of the Residual value Loss by 25%, ceteris paribus, would lead to a downgrade of the Class B Notes to AA (low) (sf).
-- a hypothetical increase of the Expected Default rate by 50% or a hypothetical increase of the Residual value Loss by 50%, ceteris paribus, would lead to a downgrade of the Class B Notes to A (high) (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 Rating Limited are subject to EU and US regulations only.

Lead Analyst: Paolo Conti, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 May 2019

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor,
London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company 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
-- Derivative Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- Rating CLOs and CDOs of Large Corporate Credit
-- Rating CLOs Backed by Loans to European SMEs

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.