DBRS Morningstar Upgrades Ratings on Marketplace Originated Consumer Assets 2017-1 PLC and Confirms Ratings on Marketplace Originated Consumer Assets 2019-1 PLC

DBRS Ratings Limited (DBRS Morningstar) upgraded the ratings on the bonds issued by Marketplace Originated Consumer Assets 2017-1 PLC (MOCA 2017-1) as follows:

-- Class C Notes to AAA (sf) from AA (high) (sf)
-- Class D Notes to AA (high) (sf) from AA (low) (sf)
-- Class E Notes to AA (sf) from A (low) (sf)

The rating on the Class C Notes switched to the timely payment of interest from the ultimate payment of interest when it became the most senior class of notes on the July 2020 payment date and also addresses the ultimate repayment of principal by the legal final maturity date. The ratings on the Class D and E Notes address the timely payment of interest when the notes are the most senior, otherwise the ultimate payment of interest; as well as the ultimate repayment of principal by the legal final maturity date.

DBRS Morningstar also confirmed the ratings on the bonds issued by Marketplace Originated Consumer Assets 2019-1 PLC (MOCA 2019-1) as follows:
-- Class A1 Notes at AAA (sf)
-- Class A2 Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at A (low) (sf)
-- Class E Notes at BBB (high) (sf)
-- Class F Notes at BBB (low) (sf)

The ratings on the Class A1 and A2 Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class B, C, D, E, and F Notes address the timely interest when the notes are the most senior, otherwise the ultimate payment of interest; as well as the ultimate repayment of principal by the legal final maturity date.

The upgrades and confirmations follow an annual review of the transactions and are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the October 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

MOCA 2017-1 and MOCA 2019-1 are both securitisations of unsecured consumer loans granted via a marketplace lending platform operated by Zopa Limited (Zopa) to borrowers in the UK and financed by Pollen Street Secured Lending plc in the case of MOCA 2017-1 and by M&G Investments plc and Prudential plc in the case of MOCA 2019-1 via funds. Zopa also services the receivables. Target Servicing Limited is appointed as a backup servicer. The securitised portfolio is amortising, unsecured by nature, and pays fixed interest rate on a monthly basis. The loans are typically used for the purchase of a vehicle, debt consolidation, or home improvements. In June 2020, Zopa was granted a full banking license and is now a deposit-taking entity.

Both transactions are static and the legal final maturity dates are on the payment dates in December 2027 in the case of MOCA 2017-1 and in December 2028 in the case of MOCA 2019-1.

PORTFOLIO PERFORMANCE
Delinquency ratios are low in both transactions; however, their increase has been softened by the introduction of payment holidays: as of the October 2020 payment date, two to three months in arrears represented 0.4% and 0.3% of the outstanding portfolio balance in MOCA 2017-1 and MOCA 2019-1, respectively, which would have been 6.2% and 5.4% of the outstanding portfolio balance in MOCA 2017-1 and MOCA 2019-1, respectively, if no payment holiday had been granted. Defaults are based on a 90 days in arrears definition; however, because of the introduction of a payment holiday, progression above 90 days has been stopped. With the benefit of payment holidays, the cumulative defaulted rate accounts for 5.8% and 2.2% of the initial portfolio balance as of the October 2020 payment date for MOCA 2017-1 and MOCA 2019-1, respectively. Cumulative recoveries represent 11.6% and 2.2% of the cumulative defaulted balance. In both transactions, prepayments have been sustained despite the pandemic outbreak: the one-month annualised constant prepayment rate is 25.7% and 20.7% as of the October 2020 payment date, in MOCA 2017-1 and MOCA 2019-1, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a review of the portfolio as of the October 2020 payment date for both transactions according to the distribution across Zopa’s internal rating bands. In both transactions, the portfolio concentration has increased in higher rating bands. Given the current level of defaults, DBRS Morningstar maintained its base case PD at 6.2% in the case of MOCA 2017-1, while decreased its base case PD to 6.0% from 6.5% in the case of MOCA 2019-1.

DBRS Morningstar increased its base case LGD assumption to 90.0% for both transactions, from 85.0% in MOCA 2017-1 and 80% in MOCA 2019-1, given that the observed recoveries were below expectations.

CREDIT ENHANCEMENT
In both transactions, the credit enhancement (CE) consists of the subordination of the junior notes and the cash reserve, limited by the outstanding portfolio balance. The CE increased substantially in the case of MOCA 2017-1 since a year ago, as follows:
-- CE to the Class C Notes to 100.0%, up from 41.6%
-- CE to the Class D Notes to 67.6%, up from 27.7%
-- CE to the Class E Notes to 43.2%, up from 17.3%

In the case of MOCA 2019-1, the increase in CE is less substantial because of the repayment of the notes on a pro rata basis as opposed to a sequential amortisation as in MOCA 2017-1. The CE increased since the initial rating as follows:
-- CE to the Class A1 Notes to 36.0%, up from 33.7%
-- CE to the Class A2 Notes to 36.0%, up from 33.7%
-- CE to the Class B Notes to 26.1%, up from 23.7%
-- CE to the Class C Notes to 18.8%, up from 16.2%
-- CE to the Class D Notes to 13.3%, up from 10.7%
-- CE to the Class E Notes to 8.9%, up 6.2%
-- CE to the Class F Notes to 5.5%, up from 2.8%

The repayment of the notes in MOCA 2019-1 remains on a pro rata basis as long as no Sequential Amortisation Event has occurred, except for the Class A1 and A2 notes, which will remain on a pro rata basis regardless.

Citibank, N.A. London Branch (Citibank London) acts as the account bank for both transactions. Based on the DBRS Morningstar private rating of Citibank London, the downgrade provisions outlined in the transactions’ documents, and other mitigating factors inherent in the transactions’ structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

NatWest Markets plc (NatWest, previously known as the Royal Bank of Scotland plc) acts as the swap counterparty for both transactions. DBRS Morningstar's Long Term Critical Obligations Rating of NatWest at “A” 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 structures in Intex DealMaker.

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 increase in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For these transactions, DBRS Morningstar conducted additional sensitivity analysis to determine that the transactions benefit from sufficient liquidity support to withstand high levels of payment suspensions in the portfolio. As of the October 2020 payment date, the reported payment holidays stood at 11.7% and 15.7% of the outstanding portfolio balance (including defaulted loans) in MOCA 2017-1 and MOCA 2019-1, respectively.

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 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 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 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 the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transactions in accordance with the principal methodology.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions 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 investor reports provided by Citibank London, and loan level data provided by Zopa.

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 both transactions. 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 MOCA 2017-1 took place on 8 November 2019 when DBRS Morningstar upgraded the Class A, B, C, D, and E notes to AAA (sf), AAA (sf), AA (high) (sf), AA (low) (sf), and A (low) (sf), respectively. The last rating action on MOCA 2019-1 took place on 19 December 2019 when DBRS Morningstar finalised its ratings on the Class A1, A2, B, C, D, E, and F notes.

The lead analyst responsibilities for MOCA 2019-1 have been transferred to Natalia Coman.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies is available at www.dbrsmorningstar.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 of each transaction 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 and LGD of the current pool of loans for the MOCA 2017-1 are 6.2% and 90.0%, respectively.
-- The base case PD and LGD of the current pool of loans for the MOCA 2017-1 are 6.0% and 90.0%, respectively.
-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. In the case of MOCA 2017-1, for example, if the LGD increased by 50%, the rating of the Class C Notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class C Notes would be expected to remain at AAA (sf), assuming no change in the LGD. Furthermore, if the PD and LGD increased by 50% and 50%, respectively, the rating of the Class C Notes would be expected to remain at AAA (sf).

In the case of MOCA 2019-1, for example, if the LGD increased by 50%, the rating of the Class A1 and A2 notes would be expected to remain at AAA (sf), assuming no change in the PD. If the PD increased by 50%, the rating for the Class A1 and A2 notes would be expected to fall to AA (high) (sf), assuming no change in the LGD. Furthermore, if the PD and LGD increased by 50% and 50%, respectively, the rating of the Class A1 and A2 notes would be expected to fall to AA (high) (sf).

MOCA 2017-1 Class C Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AAA (sf)

MOCA 2017-1 Class D Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

MOCA 2017-1 Class E Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

MOCA 2019-1 Class A1 and A2 Notes Sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)

MOCA 2019-1 Class B Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)

MOCA 2019-1 Class C Notes Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (high) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

MOCA 2019-1 Class D Notes Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

MOCA 2019-1 Class E Notes Sensitivity:
-- 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)

MOCA 2019-1 Class F Notes Sensitivity:
-- 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BB (sf)
-- 50% increase in PD, expected rating of B (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of 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 U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date for MOCA 2017-1: 16 October 2017
Initial Rating Date for MOCA 2019-1: 5 December 2019

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The rating methodologies used in the analysis of these transactions 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 Consumer and Commercial Asset-Backed Securitisations (3 September 2020) https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
-- 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
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020) https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions
-- 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 Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers

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].