DBRS Morningstar Confirms Ratings on Variable Funding Notes of BFS Funding I Limited

DBRS Ratings Limited (DBRS Morningstar) confirmed its AA (sf) ratings on the Sterling Variable Funding Note, the Euro Variable Funding Note, and the U.S. Dollar Variable Funding Note (together, the VFNs) issued by BFS Funding I Limited (the Issuer).

The transaction is a securitisation collateralised by a portfolio of trade receivables granted by subsidiaries of Bibby Financial Services Limited (BFS). Bibby Invoice Finance UK Limited (BIF UK) acts as the master servicer and the master seller of the trade receivables portfolio.

The trade receivables are acquired by the Issuer through the issuance of VFNs in British pound sterling, euros, U.S. dollars (together, the Approved Currencies) purchased directly by Bank of America Merrill Lynch International DAC, Barclays Bank plc (Barclays) or indirectly by HSBC Bank plc and Lloyds Bank plc via their respective conduits (Regency Assets DAC and Gresham Receivables (No. 37) UK Limited). The total funding commitment is equivalent to GBP 600 million and each bank or conduit has a 25% share in the funding. Subordinated loans in the Approved Currencies provided by BIF UK and proceeds from the Mezzanine B and C Notes in British pound sterling also help finance the purchase of the portfolio.

The transaction originally closed in October 2015 and has been in a revolving period since. The revolving period ends on 31 August 2023 provided no amortisation event or issuer event of default occur. The legal final maturity date is one year after the end of the revolving period i.e.at the latest in August 2024.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
--Portfolio performance of the transaction, in terms of delinquencies, defaults, dilutions, and days sales outstanding, as of 30 September 2020;
--Current sizing of the reserves sufficient to withstand stresses at the AA (sf) rating level.
--Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

PORTFOLIO PERFORMANCE
As of 30 September 2020, the gross receivables balance was equivalent to GBP 803 million and the three-month average delinquency ratio, default ratio, dilution ratio, and days sales outstanding were at 8.4%, 2.3%, 4.3%, and 42.5, respectively, below their respective trigger levels of 18.5%, 4.2%, 6.0%, and 70.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar evaluates the adequacy of available credit enhancement through the compliance with transaction definitions of the loss reserve, the dilution reserve, and the carrying cost reserve and level of factors incorporated in these definitions. The loss and dilution stress factors expected at AA (sf) rating level are 2.25.

CREDIT ENHANCEMENT
Credit enhancement is provided by the subordination of the Mezzanine B and C Notes, the subordinated loan, and overcollateralisation in the form of various reserves. As of 30 September 2020, the credit enhancement on the VFNs is 67.1% and the required reserve percentage is 34.9%.

Barclays acts as the account bank for the transaction. Based on the account bank reference rating of Barclays at A (high), which is one notch below the DBRS Morningstar public Long-Term Critical Obligations Rating of AA (low), 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 Facility, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar considers that no additional coronavirus-related adjustments for trade receivable securitisations is necessary in the moderate scenario outlined in the aforementioned macroeconomic commentaries.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 “Master European Structured Finance Surveillance Methodology” (22 April 2020).

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

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the eligibility criteria and maximum potential borrowing set forth in the transaction legal documents.

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 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” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include monthly reports, FX model, and CE model provided by BFI UK.

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 17 October 2019, when DBRS Morningstar confirmed its ratings at AA (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 on www.dbrsmorningstar.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 loss stress factor and a dilution stress factor commensurate with the rating level as per the standards described in its “Rating European Trade Receivables Securitisation Transactions” methodology. Changes in the transaction documents with respect to the loss stress factor and the dilution stress factor can have a direct impact on the rating of the Facility.
--The loss stress factor and dilution stress factor expected at AA (sf) rating level are 2.25.

Facility Risk Sensitivity:
--A decrease of the loss stress factor and the dilution stress factor to 2 from 2.25, expected rating of A (sf)
--A decrease of the loss stress factor and the dilution stress factor to 1.75 from 2.25, expected rating of BBB (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 U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Gareth Levington, Managing Director
Initial Rating Date: 23 October 2015

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

--Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
--Rating European Trade Receivables Securitisation Transactions (11 November 2019) https://www.dbrsmorningstar.com/research/352611/rating-european-trade-receivables-securitisation-transactions
--Interest Rate Stresses for European Structured Finance Transactions (28 September 2020)
https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions
--Currency Stresses for Global Structured Finance Transactions (15 April 2020)
https://www.dbrsmorningstar.com/research/359639/currency-stresses-for-global-structured-finance-transactions
--Legal Criteria for European Structured Finance Transactions (17 September 2020)
https://www.dbrsmorningstar.com/research/366797/legal-criteria-for-european-structured-finance-transactions-request-for-comment
--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
--Operational Risk Assessment for European Structured Finance Originators (30 September 2020) https://www.dbrsmorningstar.com/research/367603/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.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 on 21 January 2021 to include the following:
"For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905."