DBRS Morningstar Assigns Ratings to Globaldrive Auto Receivables UK 2020-B plc

DBRS Ratings Limited (DBRS Morningstar) assigned a AAA (sf) rating to the Class A Notes and a AA (high) (sf) rating to the Class B Notes issued by Globaldrive Auto Receivables UK 2020-B plc (the Issuer). The Issuer is a public company with limited liability incorporated in England and Wales and serves as a special-purpose entity solely for the purpose of this transaction.

The ratings of the Class A and Class B notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date on 20 October 2027, in accordance with the terms of the notes. DBRS Morningstar has not assigned a rating to the Class C notes issued in this transaction.

The Class A, Class B, and Class C notes are backed by a portfolio of approximately GBP 631 million of receivables related to amortising and balloon auto loan (TCM or trade cycle management) contracts granted by FCE Bank plc (FCE, the seller, or the servicer), a subsidiary of Ford Motor Company, to retail private and retail commercial borrowers in the United Kingdom of Great Britain and Northern Ireland. The underlying motor vehicles relating to the finance contracts consist of both new and used passenger and light commercial vehicles. FCE services the receivables.

The transaction is static and the notes will begin to amortise on the first interest payment date.

Under TCM contracts, the Issuer may be directly exposed to residual value risk if a borrower exercises their right to return the financed vehicle at maturity.

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, reserve funds, and excess spread;
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss and residual value (RV) loss assumptions under various stressed cash flow assumptions;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- FCE’s capabilities with regard to originations, underwriting, and servicing as well as the availability of a named backup servicer at closing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the Seller’s portfolio;
-- The sovereign rating of the United Kingdom of Great Britain and Northern Ireland, currently at AAA with a Negative trend; and
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction features separate waterfalls that facilitate the distribution of interest and principal collections. Both waterfalls allow for the fully sequential payment of both interest and principal on the Class A, Class B, and Class C Notes.

A nonamortising reserve account equal to 1.35% of the initial Class A and Class B notes balance is available to the structure. The reserve account provides static liquidity support to pay interest on the Class A and Class B notes, and is ultimately a source of credit enhancement to the Class A and Class B notes only.

All underlying contracts are fixed rate while floating-rate notes have been issued. The Class A and Class B notes are indexed to the daily compounded Sterling Overnight Index Average (Sonia). Interest rate risk for the Class A and Class B notes is mitigated through an interest rate swap provided by Lloyds Bank Corporate Markets plc.

DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.

COUNTERPARTIES
Elavon Financial Services DAC, UK branch (Elavon) has been appointed to act as the account bank for the transaction. Based on DBRS Morningstar’s private rating of Elavon and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Lloyds Bank Corporate Markets plc has been appointed as the interest rate swap counterparty. The downgrade provisions relating to the swap counterparty are consistent with DBRS Morningstar’s "Derivative Criteria for European Structured Finance Transactions" methodology.

CORONAVIRUS CONSIDERATIONS
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many asset-backed security (ABS) transactions, some meaningfully. 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. For this transaction, DBRS Morningstar applied a haircut to its expected recovery rate and applied additional stresses to expected default rates associated with commercial customers.

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/366543/dbrs-morningstar-global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

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.

For more information on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.

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.

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

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 FCE Bank plc and its agents.

DBRS Morningstar received the following data and information:
-- Static cumulative gross and net loss data going back to Q3 2015 and up to Q2 2020; data was provided separately for used and new vehicles and TCM and standard contracts. This data was further split into hostile and voluntary termination.
-- Dynamic delinquency from January 2015 to June 2020.
-- Vehicle realisation, turn-in, and prepayment data.
-- Loan-level data representing the closing pool and summarised stratification tables as at 30 September 2020.
-- A theoretical amortisation of the pool.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

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 this rating 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.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

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 with the parameters used to determine the ratings:

-- Expected default (credit and voluntary terminations) of 3.3%.
-- Expected loss given default of 29%
-- RV loss of 41% at AAA (sf) and 37% at AA (high) (sf).

Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are as follows:
-- Class A Notes: AAA (sf), AA (sf), AAA (sf), AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (low) (sf)
-- Class B Notes: AA (sf), A (high) (sf), AA (sf), AA (low) (sf), A (sf), AA (low) (sf), A (high) (sf), A (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: Miklos Halasz, Senior Analyst
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 30 October 2020

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
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.dbrsmorningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020), https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-financetransactions.
-- Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/357428/rating-european-structured-financetransactions-methodology.
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-europeanstructured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020) https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-europeanstructured-finance-originators.
--Derivative Criteria for European Structured Finance Transactions (24 September 2020) https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structuredfinance-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.

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].