DBRS Morningstar Upgrades Ratings of Marketplace Originated Consumer Assets 2017-1 PLC

DBRS Ratings Limited (DBRS Morningstar) upgraded the ratings of the following bonds (the Rated Notes) issued by Marketplace Originated Consumer Assets 2017-1 PLC (MOCA 2017-1 or the Issuer):

-- Class A Notes upgraded to AAA (sf) from AA (sf)
-- Class B Notes upgraded to AAA (sf) from A (high) (sf)
-- Class C Notes upgraded to AA (high) (sf) from A (sf)
-- Class D Notes upgraded to AA (low) (sf) from BBB (low) (sf)
-- Class E Notes upgraded to A (low) (sf) from B (high) (sf)

The transaction issued also the Class X and Z Notes, which DBRS Morningstar does not rate.

The ratings address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date for the Class A Notes. The Class B Notes now pass the AAA (sf) stresses on timely payment of interest and ultimate payment of principal on or before the legal final maturity date. The ratings address the ultimate payment of interest and ultimate payment of principal on or before the legal final maturity date for the Class C, D and E Notes.

The rating actions follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses as of the October 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to cover the expected losses at their respective rating levels.

MOCA 2017-1 is a securitisation of receivables related to unsecured consumer loans granted by Pollen Street Secured Lending PLC (previously named P2P Global Investments PLC) via a marketplace lending platform operated by Zopa Limited (Zopa or the Servicer) to borrowers in the United Kingdom. Target Servicing Limited is appointed as a backup servicer. The securitised portfolio is amortising, unsecured in nature and pays fixed instalments. The loans are typically used for the purchase of a vehicle, debt consolidation or home improvements. In December 2018, Zopa was granted a restricted banking license.

PORTFOLIO PERFORMANCE
As of the October 2019 payment date, the portfolio remains very granular with the top 20 borrowers representing 0.6% of the portfolio outstanding balance. 90.5% of the portfolio outstanding balance consists of non-delinquent loans and matures in 2021 and 2022, with the latest maturity in January 2023 and 91.5% of the outstanding portfolio balance has been originated in 2017. Delinquency ratios remain low: as of the October 2019 payment date, loans that are one to two months in arrears and two to three month in arrears represent 0.4% of the outstanding portfolio balance. The cumulative default ratio is 4.9% and cumulative recoveries represent 5.2% of the cumulative default amount, as of the October 2019 payment date. Prepayments are high but have trended stable since closing with an average one-month annualised constant prepayment rate of 23.0%.

PORTFOLIO ASSUMPTIONS
Although the portfolio distribution has improved in terms of the Servicer’s internal ratings towards higher quality segments, DBRS Morningstar has maintained its base case PD and LGD assumptions at 6.2% and 85.0%, respectively, because of a relatively constant monthly growth rate in defaulted amount observed since closing.

CREDIT ENHANCEMENT
Compared with the last rating action on the Rated Notes a year ago, the credit enhancement, in the form of overcollateralisation of the portfolio, has increased significantly:

-- For the Class A Notes, credit enhancement increased to 69.4%, up from 36.7%
-- For the Class B Notes, credit enhancement increased to 55.5%, up from 30.2%
-- For the Class C Notes, credit enhancement increased to 41.6%, up from 23.7%
-- For the Class D Notes, credit enhancement increased to 27.7%, up from 17.2%
-- For the Class E Notes, credit enhancement increased to 17.3%, up from 12.3%

The transaction benefits from a liquidity reserve, available to cover senior fees, expenses and interest shortfall on the most senior class of notes. The transaction benefits also from a cash reserve, available to cover senior fees, expenses and interest shortfall on any class of notes, top up the liquidity reserve and clear every Principal Deficiency Ledger (PDL) related to each class of the Rated Notes and the Class Z Notes. As of the October 2019 payment date, the liquidity reserve and the cash reserve stand at their target amount of GBP 553,771, equal to 1% of the outstanding balance of the Rated Notes. As of the October 2019 payment date, the Class Z PDL has an outstanding balance of GBP 498,784 up from GBP 135,551 a year ago. Despite the increase in the Class Z PDL, the CE level of each Rated Notes is sufficient to withstand the higher stresses at the respective upgraded rating level. The recent strengthening of Zopa’s risk management framework following its banking licence award is also viewed by DBRS Morningstar as positive for the ongoing servicing of the portfolio.

Despite its banking licence, the offer of deposits by Zopa is not yet available to the public; therefore, DBRS Morningstar deems that the transaction’s set-off risk remains limited.

Citibank, N.A. London Branch (Citibank London) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Citibank London, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the AAA (sf) rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The Royal Bank of Scotland plc (RBS) acts as the interest rate cap provider for the transaction. DBRS Morningstar's Long Term Critical Obligations Rating of RBS at “A” is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed in Intex DealMaker.

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

The principal methodology applicable to the rating is the “Master European Structured Finance Surveillance Methodology”.

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

A review of the transaction legal documents was not conducted as the legal 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 “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 servicer reports provided by Zopa and loan-level data provided by Citibank London.

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 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 9 November 2018 when DBRS Morningstar upgraded the Class A, B, C, D and E Notes to AA (sf), A (high) (sf), A (sf), BBB (low) (sf) and B (high) (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 6.2% and 85.0%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increased by 15%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class A Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if the PD and LGD increased by 50% and 15%, respectively, the rating of the Class A Notes would be expected to remain at AAA (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 50% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (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: Natalia Coman, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 17 October 2017

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.

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

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].