DBRS Morningstar Takes Rating Actions on NewDay Partnership Loan Note Issuer VFN-P1 V2 Following Amendment

DBRS Ratings Limited (DBRS Morningstar) took the following rating actions on the Sub-Series V2 VFN-P1 Loan Notes (the Notes) issued by NewDay Partnership Loan Note Issuer Ltd following the amendment:

Class A Notes: Confirmed at AAA (sf)
Class B Notes: Confirmed at AA (sf)
Class C Notes: Confirmed at A (sf)
Class D Notes: Discontinued and Withdrawn
Class E Notes: Upgraded to BBB (high) (sf) from BB (sf)
Class F Notes: Discontinued and Withdrawn

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

DBRS Morningstar notes that following the amendment the margin of certain classes of the Notes will change in September 2021 prior to the scheduled maturity in September 2023; the rating actions above largely reflect the changes where the subordination for the Class E Notes will be increased to 5% (the current subordination level for the outstanding Class D Notes before the amendment) from the current 2.1%. Following the amendment the advance rate of the Class E notes will be the same as the advance rate of the Class D notes pre-amendment. The ratings of outstanding Class D and Class F notes have been discontinued and withdrawn as the related funding is eliminated upon the execution of the amendment.

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 cobranded credit cards (with limited legacy store cards and instalment credit) affiliated with high street and online retailers granted to individuals domiciled in the United Kingdom by NewDay Cards (the originator).

The ratings are based on the following analytical considerations:
-- The transaction’s amended capital structure, including form and sufficiency of available credit enhancement to support DBRS Morningstar’s 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 of Great Britain and Northern Ireland at AA (high) with a Stable 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, 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.

During the transaction revolving period, additional receivables may be purchased, provided that the eligibility criteria 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 redemption date may be extended. If the Notes are not fully redeemed on the scheduled redemption date, the transaction enters into a rapid amortisation.

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

The transaction includes a liquidity reserve that is available to cover the shortfalls in senior expenses and interest on the Notes.

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

COUNTERPARTIES
Citibank N.A. is the account bank. Based on DBRS Morningstar’s rating of Citibank N.A. of AA (low) 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/ COVID-19 CONSIDERATIONS
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 September 2020 showed an improved total payment rate of 20.6% including the interest collections, after a record low level of 16.5% in June because of the impact of coronavirus. The payment rates appear to have stabilised but remain slightly below historical levels.

Similarly, the portfolio yield is largely stable over the reported period until March 2020. The most recent performance in September 2020 shows a total yield of 22.4%, after a record low of 21.6% in August because of the forbearance measures of payment holiday and payment freeze offered and higher delinquencies.

The reported historical charge-off rates have been below 5% since March 2020. The most recent performance in September 2020 shows an annualised charge-off rate of 5.3%, after reaching a record high of 6.5% in July 2020 following a decline in the receivables balance (and the denominator of charge-off calculation) because of coronavirus.

The asset assumptions of expected MPPR, interest yield and charge-off rates are 16%, 19% and 7%, respectively, which remain unchanged from those applied for NewDay Partnership Funding 2020-1 plc issued on 8 October 2020.

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.

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/364318/global-macroeconomic-scenarios-july-update, 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 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: https://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.

DBRS Morningstar received monthly servicer reports in addition to monthly historical dynamic data for the entire and individual portfolios of each retailer as follows:
-- Receivables balances, payment rates, yield, and purchase rates from January 2007 to June 2020.
-- Delinquencies, from January 2012 to June 2020.
-- 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 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 for the Notes took place on 7 September 2020, when the ratings of the Class A, Class E, and Class F notes were confirmed and the ratings of the Class B, Class C, and Class D notes were downgraded.

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 ratings:

-- 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, a 15% decrease in the Expected MPPR, and a 15% increase in the Expected Charge-Off Rate.

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

-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf).
-- Class B Notes: AA (sf), AA (low) (sf), AA (sf), A (high) (sf).
-- Class C Notes: A (low) (sf), A (low) (sf), A (low) (sf), BBB (high) (sf).
-- Class E Notes: BBB (low) (sf), BBB (low) (sf), BBB (sf), BB (high) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://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: Jeffrey Cespon, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2017

DBRS Ratings Limited
20 Fenchurch Street,
31st Floor,
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: https://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.
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/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 (30 September 2020), https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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: https://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].