DBRS Morningstar Confirms Ratings on Variable Funding Notes of BFS Funding I Limited

DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (sf) rating on the Sterling Variable Funding Note, Euro Variable Funding Note and U.S. Dollar Variable Funding Note (together, the VFNs) issued by BFS Funding I Limited (the Issuer).

The confirmations follow an annual review of the transaction and reflect the following analytical considerations:

-- A proposed amendment, including changes in the size of VFNs and mezzanine notes as well as a concentration limits update. DBRS Morningstar reviewed the changes in accordance with its “Rating European Trade Receivables Securitisation Transactions”.

-- Portfolio performance is within the expectations at the AA (sf) range for a trade receivable transaction.

-- Operational risk has been deemed satisfactory.

The ratings address the timely distribution of scheduled monthly interest payments and the ultimate distribution of principal in accordance with the transaction documents.

This transaction is backed by multi-currency trade receivables portfolio that were analysed for their ability to perform within certain thresholds for loss reserves, carrying costs and dilution as well as other factors specific to the trade receivables portfolio.

On 27 September 2019, DBRS Morningstar transferred the ongoing coverage of the ratings assigned to the Issuer to DBRS Ratings Limited from DBRS, Inc. The lead analyst responsibilities for this transaction have been transferred to Mudasar Chaudhry.

DBRS Ratings Limited is registered with the European Securities and Markets Authority (ESMA) under Regulation (EC) No. 1060/2009 on Credit Rating Agencies, as amended, and is a registered Nationally Recognized Statistical Rating Organization (NRSRO) affiliate in the United States and Designated Rating Organization (DRO) affiliate in Canada. DBRS, Inc. is a registered NRSRO in the United States and DRO affiliate in Canada.

The transaction structure was analysed primarily within the framework of the “Rating European Trade Receivables Securitisation Transactions” methodology.

Notes:
All figures are in British pound sterling, euros, or U.S. dollars unless otherwise noted.

The principal methodology applicable to the ratings is “Rating European Trade Receivables Securitisation Transactions”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be monitored based on the borrowing base criteria set forth in the transaction legal documents.

DBRS Morningstar conducted a review of the amended transaction documents including the Master Definitions and Framework Deed and other related transaction supporting documents. A review of any other transaction’s legal documents was not conducted as they 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 “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include BFS Funding I Limited, Bibby Line Group and any affiliates and Lloyds Bank PLC.

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

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

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar 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 23 October 2018, when DBRS Morningstar confirmed its ratings at AA (sf).

The lead analyst responsibilities for this transaction have been transferred to Mudasar Chaudhry.

Information regarding DBRS Morningstar 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 Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- Decreasing the AA (sf) multiple of 2.25 to a single A (sf) multiple of 2.0 scenario.
-- Increasing the AA (sf) multiple of 2.25 to a AAA (sf) multiple of 2.5 scenario.

Decrease to A (sf) Scenario – The credit enhancement is dynamic for all three of the primary components that comprise the advance rate. Each of said primary components, the loss reserve, the dilution reserve and the carrying cost reserve uses the 2.25 stress factor commensurate with an AA (sf) underwriting.

By decreasing all the reserves using a stress factor of two, the decrease results in approximately 11% less dynamic credit enhancement. Given the data, this would not default the transaction, but rather the transaction would be operating with less reserves relative to issuance commensurate with that of A (sf).

Increase to AAA (sf) Scenario – The credit enhancement is dynamic for all three of the primary components that comprise the advance rate. Each of said primary components, the loss reserve, the dilution reserve and the carrying cost reserve, uses the 2.25 stress factor commensurate with an AA (sf) underwriting.

By increasing all the reserves using a stress factor of 2.5, the increase results in approximately 11% more dynamic credit enhancement. This transaction would be operating with more reserves relative to issuance commensurate with that of AAA (sf). DBRS Morningstar concludes that a hypothetical decrease of the base case stress factor from 2.25 for AA (sf) to 2.0 for “A” (sf) would likely not result in a default but approximately 11% less credit enhancement relative to issuance.

For further information on DBRS Morningstar 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: Mudasar Chaudhry, Senior Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 23 October 2015

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

Ratings issued and monitored by DBRS Ratings Limited are noted as such on the DBRS Morningstar website; however, the language and related statements in previously published press releases in respect of the relevant ratings will not be changed retroactively and will remain as part of DBRS Morningstar’s historical record. The ratings issued and monitored in the European Union are marked as such in their respective rating tables. As part of this transfer, these markings will remain unchanged on all active ratings related to the Issuer.

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

-- Rating European Trade Receivables Securitisation Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Legal Criteria for European Structured Finance Transactions

A description of how DBRS Morningstar 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 [email protected].