DBRS Finalises Provisional Ratings on Notes Issued by NewDay Funding 2019-2 plc

DBRS Ratings Limited (DBRS) finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E and Class F Notes (collectively, the Notes) issued by NewDay Funding 2019-2 plc (the issuer) as follows:

-- AAA (sf) to the Class A Notes
-- AA (high) (sf) to the Class B Notes
-- A (sf) to the Class C Notes
-- BBB (low) (sf) to the Class D Notes
-- BB (sf) to the Class E Notes
-- B (high) (sf) to the Class F Notes

As the issuer is part of a master issuance structure where all series of notes are supported by the same pool of receivables and generally issued under the same requirements regarding servicing, amortisation events, priority of distributions and eligible investments, DBRS notes that the issuance of the Notes will not result in a downgrade or withdrawal of the ratings on the outstanding series listed below:

NewDay Funding 2015-2 Plc:
-- AAA (sf) for the Class A Notes
-- AA (high) (sf) for the Class B Notes
-- A (high) (sf) for the Class C Notes
-- BBB (high) (sf) for the Class D Notes
-- BB (high) (sf) for the Class E Notes
-- B (high) (sf) for the Class F Notes

NewDay Funding 2017-1 Plc:
-- AAA (sf) for the Class A Notes
-- AA (high) (sf) for the Class B Notes
-- A (high) (sf) for the Class C Notes
-- BBB (sf) for the Class D Notes
-- BB (sf) for the Class E Notes
-- B (high) (sf) for the Class F Notes

NewDay Funding 2018-1 Plc:
-- AAA (sf) for Class A1 Notes
-- AAA (sf) for Class A2 Notes
-- AA (high) (sf) for Class B Notes
-- A (high) (sf) for Class C Notes
-- BBB (low) (sf) for Class D Notes
-- BB (low) (sf) for Class E Notes
-- B (high) (sf) for Class F Notes

NewDay Funding 2018-2 Plc:
-- AAA (sf) for Class A1 Notes
-- AAA (sf) for Class A2 Notes
-- AA (high) (sf) for Class B Notes
-- A (sf) for Class C Notes
-- BBB (sf) for Class D Notes
-- BB (low) (sf) for Class E Notes
-- B (high) (sf) for Class F Notes

NewDay Funding 2019-1 Plc:
-- AAA (sf) for Class A Notes
-- AA (high) (sf) for Class B Notes
-- A (sf) for Class C Notes
-- BBB (sf) for Class D Notes
-- BB (sf) for Class E Notes
-- B (high) (sf) for Class F Notes

NewDay Funding Loan Note Issuer VFN-F1 V1:
-- BBB (low) (sf) for Class A Notes
-- BB (low) (sf) for Class E Notes
-- B (high) (sf) for Class F Notes

NewDay Funding Loan Note Issuer VFN-F1 V2:
-- AAA (sf) for Class A Notes
-- AA (high) (sf) for Class B Notes
-- A (high) (sf) for Class C Notes
-- BBB (low) (sf) for Class D Notes
-- BB (low) (sf) for Class E Notes
-- B (high) (sf) for Class F Notes

The ratings of the Notes address the timely payment of interest and ultimate repayment of principal by the legal maturity date.

The ratings are based on the considerations listed below:
--The transaction capital structure including the form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS’s expected charge-off, payment and yield rates under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Notes.
-- NewDay Ltd (the seller) and its delegates’ capabilities with respect to originations, underwriting, servicing, data processing and cash management.
-- An operational risk review of the seller, which DBRS deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality of the collateral and diversification of the collateral and historical and projected performance of the seller’s portfolio.
--The sovereign rating of the United Kingdom, which is 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 or transferor.
-- The consistency of the balance-guaranteed, cross-currency interest rate swap with DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The transaction cash flow structure was analysed in DBRS’s proprietary tool.

The Series 2019-2 Class A Notes are indexed to USD Compounded Daily SOFR (Secured Overnight Financing Rate), a reference rate provided by the Federal Reserve Bank of New York.

The Series 2019-2 Notes (except the Series 2019-2 Class A Notes) are indexed to Compounded Daily SONIA (Sterling Overnight Index Average) rates. To address the risk of negative SONIA rates, DBRS further stressed the downward interest rates, considering the historical differences between LIBOR and SONIA (typically trading below LIBOR).

Notes:
All figures are in British pound sterling or U.S. dollars 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.

An asset and a cash flow analysis were both conducted.

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 “Global Methodology for Rating Sovereign Governments” at: http://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings includes performance data relating to the receivables provided by NewDay directly. DBRS received monthly dynamic historical performance data from June 2007 to June 2019 and static performance data from 2008 to Q2 2019 for the entire book, including the organic and acquired credit card portfolios in respect of receivables balances, payment rates, yield rates, loss rates and recoveries. Furthermore, updated stratification tables were provided for the securitised pool.

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

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 these 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.

The ratings of the Series 2019-2 Notes concern newly issued financial instruments. These are the first DBRS ratings on these financial instruments.

This is the first rating action on the Series 2019-2 Notes since the Initial Rating Date for the Notes. The last rating actions took place on 11 June 2019 when DBRS finalised the provisional ratings for NewDay Funding 2019-1 Notes and confirmed the related ratings for NewDay Funding 2015-2 Notes, NewDay Funding 2017-1 Notes, NewDay Funding 2018-1 Notes, NewDay Funding 2018-2 Notes, NewDay Funding Loan Note Issuer VFN-F1 V1 Notes and NewDay Funding Loan Note Issuer VFN-F1 V2 Notes.

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 compared to the parameters used to determine the rating:

-- Expected Yield Rate of 28%
-- Expected Principal Payment Rate of 8%
-- Expected Charge-Off Rate of 16%

Scenario 1: a 25% decrease in the Expected Yield Rate
Scenario 2: a 25% decrease in the Expected Principal Payment Rate
Scenario 3: a 25% increase in the Expected Charge-Off Rate
Scenario 4: a 15% decrease in the Expected Yield Rate, 15% decrease in the Expected Principal Payment Rate and 15% increase in the Expected Charge-Off Rate.

DBRS concludes that the expected ratings under the four stress scenarios are:

-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (sf).
-- Class B Notes: AA (sf), AA (low) (sf), AA (low) (sf), A (high) (sf).
-- Class C Notes: A (low) (sf), A (low) (sf), A (low) (sf), BBB (sf).
-- Class D Notes: BB (sf), BB (high) (sf), BB (high) (sf), BB (low) (sf).
-- Class E Notes: B (high) (sf), BB (low) (sf), BB (high) (sf), B (high) (sf).
-- Class F Notes: B (low) (sf), B (high) (sf), B (high) (sf), B (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: Jeffrey Cespon, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates: 9 September 2019 for Series 2019-2, 12 November 2015 for Series 2015-2; 16 June 2017 for Series 2017-1; 20 June 2018 for Series 2018-1; 22 October 2018 for Series 2018-2; 28 May 2019 for Series 2019-2; 15 December 2017 for Loan Note Issuer VFN-F1 V1 and Loan Note Issuer VFN-F1 V2.

DBRS Ratings Limited
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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
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- 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.

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