DBRS Morningstar Assigns Rating to NewDay Partnership Loan Note Issuer VFN-P1 V2 Class D Notes

DBRS Ratings Limited (DBRS Morningstar) assigned an A (low) (sf) rating to the Class D Sub-Series V2 VFN-P1 Loan Notes (the Notes) issued by NewDay Partnership Loan Note Issuer Ltd following reinstatement of the Notes.

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

The rating action reflects the reinstatement of the Notes with a subordination level of 7.3%. The subordination of the Notes was 5.0% before the rating was discontinued on 20 November 2020.

DBRS Morningstar based its rating 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 rating is 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’s 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 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 rating 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 asset assumptions of the expected monthly principal payment rate (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 2 December 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/370672/global-macroeconomic-scenarios-december-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 20 November 2020, when the ratings of the Class A, Class B, and Class C notes were confirmed, the ratings of the Class D and class F notes were discontinued, and the ratings of the Class E notes were upgraded.

The lead analyst responsibilities for this transaction have been transferred to Michael Langholz.

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 D Notes: BBB (high) (sf), BBB (sf), BBB (high) (sf), 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Michael Langholz, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 15 December 2017

DBRS Ratings Limited
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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/357429/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].

This press release was amended on 18 January 2021 to include the following note: "DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies."