DBRS Morningstar Assigns Provisional Ratings to Cardiff Auto Receivables Securitisation 2019-1 plc

DBRS Ratings Limited (DBRS Morningstar) assigned provisional ratings of AAA (sf) and A (high) (sf), respectively, to the Class A and Class B Notes (together, the Rated Notes) to be issued by Cardiff Auto Receivables Securitisation 2019-1 plc (the issuer or CARS 2019-1).

The provisional ratings are based on information provided to DBRS Morningstar by the issuer and its agents as of the date of this press release. The ratings can be finalised upon review of an execution version of the governing transaction documents and opinions. To the extent that the documents and information provided to DBRS Morningstar as of this date differ from the executed version of the governing transaction documents, DBRS Morningstar may assign different final ratings to the Rated Notes.

The transaction represents the issuance of notes backed by approximately GBP 420 million of receivables related to personal contract purchase (PCP) auto loan contracts granted by Black Horse Limited (Black Horse) to borrowers in England and Wales. The underlying motor vehicles related to the finance contracts consist of both new and used vehicles. The receivables are serviced by Black Horse.

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

The ratings are based on the following analytical considerations:

-- The transaction’s capital structure including available credit enhancement in the form of subordination, liquidity support and excess spread.
-- The sufficiency of credit enhancement levels to support DBRS Morningstar’s expected defaults, recoveries and residual value (RV) losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Rated Notes.
-- The capabilities of Black Horse with respect to originations, underwriting, servicing and financial strength.
-- The operational risk review of the originator and servicer, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality and concentration of the collateral and historical and projected performance of the seller’s portfolio.
-- The sovereign rating of the United Kingdom of Great Britain and Northern Ireland, which is currently rated AAA with a Stable trend by DBRS Morningstar.
-- The expected consistency of legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.

The transaction cash flow structure was analysed in Intex DealMaker.

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 Morningstar 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” methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include performance data relating to the receivables provided by the seller directly or through the arranger, Lloyds Bank Commercial Banking.

DBRS Morningstar received static monthly cumulative PCP gross loss and recovery data, dynamic PCP delinquency and prepayment data, loan-level characteristics, stratification data and PCP RV realisation data. The historical static data covered periods from August 2009 up to June 2019 and allowed analysis of credit defaults and voluntary terminations for both new and used vehicles.

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

DBRS Morningstar was 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 ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings:

-- Expected default (credit defaults and voluntary terminations) of 6.4%.
-- Expected loss given default (LGD) of 24%.
-- RV loss of 45% for the Class A Notes and 32% for the Class B Notes.

Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.

DBRS concludes that the expected ratings under the eight stress scenarios will be:
-- Class A Notes: AA (sf), A (high) (sf), AA (high) (sf), AA (low) (sf), A (high) (sf), AA (sf), A (high) (sf), A (sf).
-- Class B Notes: A (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf).

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: Alex Garrod, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 5 November 2019

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
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses 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].

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].