DBRS Morningstar Confirms Ratings on Bumper 8 (UK) Finance Plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) ratings on both the Class A and B Notes (the Rated Notes) issued by Bumper 8 (UK) Finance Plc (the Issuer).

The ratings on the Rated Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date, on the payment date falling in November 2027.

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 December 2019 payment date.
-- Probability of default (PD), loss given default (LGD) and residual value (RV) haircut assumptions on the remaining receivables.
-- Current available credit enhancement to the Rated Notes to cover the expected losses at the AAA (sf) rating level.

The Issuer is a securitisation of auto lease receivables and RV receivables granted and serviced by LeasePlan UK Limited (LPUK) to corporate, small and medium-size enterprises (SME), retail, and public sector clients in England and Wales.

PORTFOLIO PERFORMANCE
As of 30 November 2019, the GBP 186.6 million portfolio comprised leases solely for new vehicles. SME and retail customers represented 57.3% of the outstanding collateral balance, whereas corporate and public sector clients amounted to 40.4% and 2.2% of the pool balance, respectively. The RV receivables associated with the auto leases were securitised and comprised 54.8% of the current portfolio balance.

As of the December 2019 payment date, two- to three-month arrears represented 2.1% of the outstanding portfolio balance, up from 0.1% at the December 2018 payment date. As of the December 2019 payment date, the 90+ delinquency ratio was 0.3%, down from 0.8% 12 months prior. As of the December 2019 payment date, the cumulative default ratio was 1.5%. Both arrears and defaults remained low and within DBRS Morningstar’s expectations.

PORTFOLIO ASSUMPTIONS
DBRS Morningstar decreased its base case default rate to 2.9% from 3.0% a year ago to reflect the latest portfolio composition, maintained the base case recovery rate for the AAA (sf) rating level at 45.2%, and maintained the RV haircut assumption for the AAA (sf) rating level at 40.2%.

CREDIT ENHANCEMENT
As of the December 2019 payment date, credit enhancement to the Class A Notes was 77.7%, up from 40.4% 12 months prior. Credit enhancement to the Class B Notes was 64.3%, up from 33.4% 12 months prior. The source of credit enhancement for the Rated Notes consists of their respective subordination. The transaction benefits from an amortising liquidity reserve that provides liquidity support to the Rated Notes. The liquidity reserve is sized at 0.6% of the Rated Notes’ balance and is currently at its target amount and floor of GBP 2.0 million. Furthermore, the commingling, set-off and maintenance reserves are also fully funded, due to the ongoing occurrence of the Reserve Trigger Event.

The commingling, set-off and maintenance reserve funds are at their target levels of GBP 2.1 million, GBP 19.1 million, and GBP 6.2 million, respectively.

BNP Paribas Securities Services SCA, London Branch acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA, London Branch, 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 Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA acts as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Critical Obligations Rating of BNP Paribas SA at AA (high) is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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

The principal methodology applicable to the ratings 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 investor reports and loan-level data provided by LeasePlan UK Limited.

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 24 January 2019, when DBRS Morningstar confirmed the rating of the Class A Notes at AAA (sf) and upgraded the rating of the Class B Notes to AAA (sf) from AA (high) (sf).

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 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):

-- 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, LGD and RV haircut assumptions for the remaining pool of leases at the AAA (sf) rating level are: PD of 2.9%, LGD of 54.8% and RV haircut of 40.2%.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD, LGD and RV haircut increase by a certain percentage over the base case assumption. For example, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in either the PD or LGD. Furthermore, if both the PD and LGD as well as the RV haircut increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf).

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

Class B Notes Risk Sensitivity: -- 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (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: David Lautier, Senior Vice President
Initial Rating Date: 24 January 2017

DBRS Ratings Limited
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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.

-- 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
-- Derivative Criteria for European Structured Finance Transactions
-- Rating CLOs Backed by Loans to European SMEs

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].

This press release was amended shortly after publication to correct the RV receivables portfolio balance. It previously stated it was 56.0% of the current portfolio balance instead of 54.8%.