DBRS Morningstar Confirms Ratings of Securitisation of Catalogue Assets Limited

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the notes (the Rated Notes) issued by Securitisation of Catalogue Assets Limited (the Issuer) as follows:

-- Class A-S Variable Funding Notes (Class A-S VFN) at AAA (sf)
-- Class A-J Variable Funding Notes (Class A-J VFN) at A (sf)

The Issuer is a securitisation of home shopping receivables granted to private individuals by Shop Direct Finance Company Limited (Shop Direct) in the United Kingdom.

The rating actions follow amendments to the transaction executed on 19 December 2019 which include the following:
-- The issuance of additional Class C2 Notes;
-- Extension of the Class A-S VFN and Class A-J VFN End Dates from December 2021 to December 2022;
-- Increase in the margins on the Class A-S VFN, Class A-J VFN and Class B Notes.

The rating actions are also based on the following considerations:
-- Portfolio performance, in terms of charge-off rates, payment rates and yield rates;
-- Available credit enhancement to the Rated Notes to cover expected losses at their respective rating levels;
-- The ability of the transaction structure and triggers to withstand stressed cash flow assumptions and repay the Rated Notes in full and in accordance with the terms and conditions of the transaction documents.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
Based on performance data provided as of October 2019, the monthly payment rate was 9.3% and the three-month moving average was 10.1%. The delinquency ratio was 11.5% and the five-month delinquency ratio was 4.3%. The three-month moving average portfolio default rate was 0.8% and the annualised charge-off rate was 9.4%.

DBRS Morningstar considered the historic performance of the transaction and the product weightings applicable to the portfolio to assess its asset and portfolio assumptions. The base case charge-off, payment rate, and yield assumptions were maintained at 15.5%, 9.0%, and 18.0%, respectively.

CREDIT ENHANCEMENT AND RESERVES
The maximum advance rates available to the Class A-S VFN and Class A-J VFN are 64.0% and 73.0%, respectively, representing credit enhancement, excluding the liquidity reserve, of 36.0% and 27.0%, respectively.

The liquidity reserve target balance is calculated based on the aggregation of amounts calculated for each class of Notes. These class-specific amounts consider the sum of the total margin for each of the Notes, one-month GBP Libor plus 2.0% plus a further 1.0%, which are then multiplied by the applicable commitment amounts (or if zero, the applicable balance of the Notes). These amounts are then calculated to cover three payment dates for the Class A-S VFN and one payment date for the other classes of Notes.

HSBC Bank plc (HSBC) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of HSBC, 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 rating assigned to the Class A-S VFN, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

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

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

The principal methodology applicable to the ratings are the “Master European Structured Finance Surveillance Methodology” and “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology.

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

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

DBRS Morningstar has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment.

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 performance data and monthly reports provided by Shop Direct through HSBC, the arranger.

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 6 December 2018, when DBRS Morningstar assigned ratings to the Class A-S VFN and Class A-J VFN of AAA (sf) and A (sf), respectively.

The lead analyst responsibilities for this transaction have been transferred to Clare Wootton.

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 with the parameters used to determine the rating (the Base Case):

-- Expected charge-off rate: 15.5%
-- Expected payment rate: 9.0%
-- Expected yield rate: 18.0%

Scenario 1: Charge off increased by 25%, yield decreased by 25%
Scenario 2: Charge off increased by 50%, yield decreased by 50%
Scenario 3: Charge off increased by 25%, MPR decreased by 25%
Scenario 4: Charge off increased by 50%, MPR decreased by 50%
Scenario 5: Yield decreased by 25%, MPR decreased by 25%
Scenario 6: Yield decreased by 50%, MPR decreased by 50%

DBRS Morningstar concludes that the expected ratings under the six stress scenarios are:

-- Class A-S VFN: AA (high) (sf), A (sf), AA (low) (sf), BBB (low) (sf), AA (sf), BBB (low) (sf)
-- Class A-J VFN: BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (low) (sf), BBB (high) (sf), BB (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: Clare Wootton, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 25 November 2013

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

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

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].