DBRS Morningstar Confirms and Downgrades Ratings of NewDay Partnership Funding-Related Transactions, Removes Under Review with Negative Implications

DBRS Ratings Limited (DBRS Morningstar) confirms and downgrades the ratings of NewDay Partnership Funding related transactions as follows:

NewDay Partnership Funding 2017-1 plc:
Class A Notes: confirmed at AAA (sf)
Class B Notes: downgraded to AA (sf) from AAA (sf)
Class C Notes: downgraded to A (sf) from AA (high) (sf)
Class D Notes: downgraded to BBB (high) (sf) from A (sf)
Class E Notes: downgraded to BB (sf) from BBB (sf)
Class F Notes: confirmed at B (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V1:
Class A Notes: downgraded to BBB (high) (sf) from A (sf)
Class E Notes: confirmed at BB (sf)
Class F Notes: confirmed at B (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V2:
Class A Notes: confirmed at AAA (sf)
Class B Notes: downgraded to AA (sf) from AAA (sf)
Class C Notes: downgraded to A (sf) from AA (high) (sf)
Class D Notes: downgraded to BBB (high) (sf) from A (sf)
Class E Notes: confirmed at BB (sf)
Class F Notes: confirmed at B (sf)

Except for two AAA (sf) rated Class A Notes which were not placed Under Review with Negative Implications (UR-Neg.), the rating actions above remove the relevant ratings from such status, where they were first placed on 28 May 2020 and maintained on 28 August 2020. For more information, please refer to www.dbrsmorningstar.com.

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

DBRS Morningstar based its ratings on information provided by the issuer and its agents as of the date of this press release.

The notes are backed by a portfolio of co-branded credit cards (with limited legacy store cards and instalment credit) affiliated with high street and online retailers granted to individuals domiciled in the UK by NewDay Cards (the originator).

The ratings are based on the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement to support DBRS Morningstar’s revised expectation of charge-off, principal payment, and yield rates under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes.
-- The originator’s capabilities with respect to originations, underwriting, and servicing.
-- An operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the securitised portfolio.
-- DBRS Morningstar’s sovereign rating of the United Kingdom at AAA with a Negative trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The notes are part of the master issuance structure of Newday Partnership Funding, where all series of notes are supported by the same pool of receivables and generally issued under the same requirements regarding servicing, amortisation events, priority of distributions, and eligible investments.

The transactions include scheduled revolving periods. During this period, the issuer may purchase additional receivables provided that the eligibility criteria set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer termination. The scheduled revolving period may be extended by the servicer by up to 12 months. If the notes are not fully redeemed at the end of the respective scheduled revolving periods, the transaction enters into a rapid amortisation.

The interest rate mismatch risk between the fixed-interest rate collateral and floating-rate coupons of the notes is, to a degree, mitigated by the excess spread in the transactions and considered in DBRS Morningstar’s cash flow analysis.

The transactions include series-specific liquidity reserves that are available to cover the shortfalls in senior expenses and interests on the notes.

COUNTERPARTIES
Citibank N.A. is the account bank for the transactions. Based on DBRS Morningstar’s rating of Citibank and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the ratings assigned.

PORTFOLIO AND CASH FLOW ASSUMPTIONS
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies could continue to rise, and payment and yield rates could remain subdued in the coming months for many credit card portfolios. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The estimated monthly principal payment rates (MPPRs) of the securitised portfolio have been largely stable above 20% over the reported period until March 2020. The most recent performance in June 2020 shows an estimated MPPR of 16.1%, after a record low level of 14.6% in May because of the impact of coronavirus. The MPPRs appear to have stabilised but remain lower than historical levels. Based on the analysis of historical data, macroeconomic factors and the portfolio-specific COVID-19 adjustments, DBRS Morningstar revised the expected MPPR down to 16% from 20.5%.

Similarly, the portfolio yield is largely stable over the reported period until March 2020. The most recent performance in June 2020 shows an interest yield of 19.2%, a record low level because of the forbearance measures of payment holiday and payment freeze offered and higher delinquencies. DBRS Morningstar, nonetheless, maintained the expected cash interest yield at 19%, after consideration of the observed trend and potential yield compression because of the forbearance measures.

The reported historical charge-off rates have been below 5% since 2015 until March 2020. The most recent performance in June 2020 shows an annualised charge-off rate of 6.3%, a record high level over the past five years likely because of coronavirus. Based on the analysis of delinquency trends, macroeconomic factors and the portfolio-specific adjustment because of the impact of coronavirus, DBRS Morningstar revised the expected charge-off rate upward to 7% from 5%.

DBRS Morningstar also elected to stress the asset performance deterioration over a longer period for the notes rated below investment grade in accordance with its “Rating European Consumer and Commercial Asset-Backed Securitisations” methodology.

DBRS Morningstar analysed the transaction structure in its proprietary cash flow tool.

COVID-19 CONSIDERATIONS
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 22 July 2020. For details, see the following commentaries:
https://www.dbrsmorningstar.com/research/364318/global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and
https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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” (3 September 2020).

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 at: http://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The data and information used for these ratings include the following data provided by NewDay Cards:
-- Receivables balances, payment rates, yield, and purchase rates from January 2007 to June 2020,
-- Delinquencies, from December 2007 to June 2020,
-- Recoveries, from January 2012 to June 2020, and
-- Charge-offs, from July 2009 to June 2020.

Additional data was also provided with regard to utilisation rate, credit limits, dilutions, and interest rates.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings, DBRS Morningstar was supplied with third-party assessments for NewDay Partnership Funding 2017-1 plc. However, this did not impact the rating analysis. No third-party assessments were provided for NewDay Partnership Funding Loan Note Issuer VFN-P1 V1 and NewDay Partnership Funding Loan Note Issuer VFN-P1 V2 at the issuance of initial ratings. 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 actions on these transactions took place on 28 August 2020, when the relevant ratings listed above were maintained UR-Neg., except for two AAA (sf)-rated Class A Notes ratings which were not placed UR-Neg. The last rating actions for the Class A Notes of NewDay Partnership Funding 2017-1 plc and NewDay Partnership Funding Loan Note Issuer VFN-P1 V2 took place on 17 October 2019.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrsmorningstar.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 rating:

-- Expected Yield Rate of 19%
-- Expected MPPR of 16%
-- Expected Charge-Off Rate of 7%

Scenario 1: a 25% decrease in the Expected Yield Rate
Scenario 2: a 25% decrease in the Expected MPPR
Scenario 3: a 25% increase in the Expected Charge-Off Rate
Scenario 4: a 15% decrease in the Expected Yield Rate, 15% decrease in the Expected MPPR and 15% increase in the Expected Charge-Off Rate.

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

NewDay Partnership Funding 2017-1 plc:
--Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf).
--Class B Notes: AA (low) (sf), A (high) (sf), A (high) (sf), A (sf).
--Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
--Class D Notes: BB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf).
--Class E Notes: B (high) (sf), BB (low) (sf), BB (sf), B (high) (sf).
--Class F Notes: below B (low) (sf), B (sf), B (sf), B (low) (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V1:
--Class A Notes: BB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf).
--Class E Notes: B (high) (sf), BB (sf), BB (sf), B (high) (sf).
--Class F Notes: below B (low) (sf), B (sf), B (sf), below B (low) (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V2:
-- Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf).
-- Class B Notes: A (high) (sf), A (high) (sf), A (high) (sf), A (sf).
-- Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- Class D Notes: BB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf).
-- Class E Notes: B (high) (sf), BB (low) (sf), BB (sf), B (high) (sf)
-- Class F Notes: below B (low) (sf), B (sf), B (sf), below B (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: Jeffrey Cespon, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Dates: 29 September 2017 for NewDay Partnership Funding 2017-1; 15 December 2017 for NewDay Partnership Funding Loan Note Issuer VFN-P1 V1; 15 December 2017 for NewDay Partnership Funding Loan Note Issuer VFN-P1 V2.

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered in England and Wales: No. 7139960

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

-- Rating European Consumer and Commercial Asset Backed Securitisations (3 September 2020),
https://www.dbrsmorningstar.com/research/355533/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (28 February 2020),
https://www.dbrsmorningstar.com/research/357428/rating-european-structured-finance-transactions-methodology
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020),
https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020),
https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019).
https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

This press release was amended shortly after publication to correct the estimated MPPR of 16.1% from 19.6% and the record low level to 14.6% from 17.6%.