DBRS Morningstar Confirms Rating of Globaldrive UK Dealer Floorplan Funding I Limited

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) rating on the Series 2007-1 Class A Loan Notes (the Notes) issued by Globaldrive UK Dealer Floorplan Funding I Limited (the Issuer).

The rating on the Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of realised losses, principal payment rates, and yield as of the November 2020 payment date.
-- Current available credit enhancement to the Notes to cover the expected losses at the AAA (sf) rating level in various dealer concentration and liquidation scenarios.
-- No early amortisation events have occurred.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a securitisation of auto wholesale receivables originated in the UK by FCE Bank plc (FCE) and related to the purchase and financing by motor vehicle dealers of their new car/truck inventory and dealer vehicle plan (DVP) receivables. The ultimate parent company of FCE is Ford Motor Company USA.

The transaction is in its revolving period, which is currently scheduled to terminate on the payment date in March 2021 in the absence of any early amortisation events. The legal final maturity date is on the payment date in September 2023. The end of the revolving period and the legal maturity were extended at the latest amendment on 14 September 2020. For further information, please see the following press release: https://www.dbrsmorningstar.com/research/366437/dbrs-morningstar-comments-on-globaldrive-uk-dealer-floorplan-funding-i-limited-following-amendment.

PORTFOLIO PERFORMANCE
As of the November 2020 payment date, the three-month average principal payment rate was 42.9%, above the early amortisation trigger level of 18.0% and the annualised portfolio yield was 39.4% (including additional interest income generated through the discount mechanism). Realised losses were zero. Both the three-month average principal payment rate and annualised portfolio yield have recovered above pre-pandemic levels.

The collateral is subject to a concentration limit of 15% on DVP receivables, which stand at 1.6% of the outstanding portfolio balance.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Since the last review one year ago, DBRS Morningstar increased its base case default rate expectation for the portfolio to 8.5% from 8.0% , and decreased its base case yield assumption to 1.5% from 4.4%. DBRS Morningstar also maintained an increase in the default rate up to 42.5% at the AAA (sf) rating level and a decline of the payment rate by 50.0% at the AAA (sf) rating level. DBRS Morningstar’s updated assumptions reflect adjustments within the context of the coronavirus pandemic.

CREDIT ENHANCEMENT
Credit enhancement to the Notes in this transaction consists of the subordination of the junior notes and the Series 2007-1 Class B, Class C, and Class D Loan Notes, which DBRS Morningstar does not rate.

As of the November 2020 payment date, credit enhancement to the Notes was 30.0%, which has decreased from 37.0% at the latest amendment on 14 September 2020.

The transaction benefits from a reserve available to cover senior fees and interest on the Notes and the junior notes. During the three-month average payment rate trigger suspension period, which started on 1 May 2020 and was further extended to end on 31 August 2020, the reserve balance was increased to GBP 2.70 million. Since the start of the suspension period, drawings are allowed until the reserve’s required amount, set at 0.5% of the Series 2007-1 Class A, Class B, and Class C Notes Loan Notes limits, is reached. After this time, the reserve then becomes nonamortising. As of the November 2020 payment date, the Series 2007-1 reserve’s outstanding balance remained at GBP 2.69 million.

The minimum seller interest is the greater of GBP 1 or the sum of overconcentration and ineligible receivables.

BNP Paribas Securities Services S.C.A, Jersey Branch acts as the receivables trustee account bank for the transaction. Based on the DBRS Morningstar private rating of the parent company, BNP Paribas Securities Services S.C.A, 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 ratings assigned to the Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar analysed the transaction using its proprietary Excel-based cash flow engine.

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 continue to increase in the coming months for many ABS transactions, some meaningfully. The rating is based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. More information about DBRS Morningstar’s view on the impact of the coronavirus pandemic on auto-wholesale securitisations can be found at: https://www.dbrsmorningstar.com/research/359606/the-impact-of-covid-19-on-global-auto-wholesale-transactions.

For this transaction, DBRS Morningstar increased its default rate assumption, decreased its yield rate assumption, and considered stressed default rate increase and payment rate decline scenarios in its cash flow analysis.

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’s 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 rating 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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

DBRS Morningstar reviewed three amendments to the transaction, which were effective on 1 May 2020, 31 July 2020, and 14 September 2020, respectively. These reviews did not cover all transaction documents, as some 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 this rating include performance data and investor reports provided by FCE.

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 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.

The last rating action on this transaction took place on 12 April 2019, when DBRS Morningstar confirmed its AAA (sf) ratings on the 2007-1 Class A Loan Notes and 2010-1 Class A Loan Notes. On 13 January 2020, DBRS Morningstar discontinued its rating on the 2010-1 Class A Loan Notes.

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 in its cash flow analysis, as compared to the parameters used to determine the rating (the Base Case). Separate stresses were applied in its analysis of dealer concentration and liquidation scenarios.

-- Default Rate: base case of 8.5%, stressed with a 25% and 50% increase
-- Monthly Principal Payment Rate (MPPR): base case of 18.0% (in line with the payment rate early amortisation trigger), stressed with a 25% and 50% decrease
-- Yield: base case of 1.5%, stressed with a 25% and 50% decrease

Series 2007-1 Class A Loan Notes Risk Sensitivity:

Whilst holding the MPPR and the yield constant:
-- 25% increase in default rate, expected rating of AA (high) (sf)
-- 50% increase in default rate, expected rating of AA (high) (sf)

Whilst holding the default rate and the yield constant:
-- 25% decrease in MPPR, expected rating below B (low) (sf)
-- 50% decrease in MPPR, expected rating below B (low) (sf)

Whilst holding the MPPR and the default rate constant:
-- 25% decrease in yield, expected rating of BB (high) (sf)
-- 50% decrease in yield, expected rating 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 U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 12 January 2010

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.

-- Master European Structured Finance Surveillance Methodology (22 April 2020)
https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology.
-- Rating European Auto Wholesale Securitisations (5 November 2020)
https://www.dbrsmorningstar.com/research/369686/rating-european-auto-wholesale-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.
-- 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.
-- 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.
-- Operational Risk Assessment for European Structured Finance Originators (28 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].