DBRS Morningstar Confirms Ratings of Bumper UK 2019-1 Finance plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings of the Class A and Class B Notes (together, the Notes) issued by Bumper UK 2019-1 Finance plc (the Issuer) as follows:

-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)

The ratings of the Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2028.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the January 2021 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.

The Issuer is a securitisation of auto lease agreements granted and serviced by LeasePlan UK Limited (LPUK) to corporate, small and medium-size enterprise (SME), retail, and public-sector clients in England and Wales. Residual value claims related to the auto leases are securitised. The transaction had a one-year revolving period, which ended in July 2020. The legal final maturity date is on the payment date in December 2028.

PORTFOLIO PERFORMANCE
As of January 2021, loans two- to three-months in arrears represented 0.2% of the outstanding portfolio balance, up from 0.1% in January 2020. Loans more than three months in arrears represented 0.5% of the outstanding portfolio balance, up from 0.4% in January 2020. The cumulative default ratio was 1.0%.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the remaining pool of receivables using updated historical performance data provided by LPUK, and has updated its expected PD, LGD, and Residual Value (RV) Haircut assumptions, including coronavirus-related adjustments, to the following:
-- Expected PD of 3.1%;
-- LGD of 65.1% and 63.6% at the AAA (sf) and AA (high) (sf) rating levels, respectively;
-- RV Haircut of 39.8% and 36.8% at the AAA (sf) and AA (high) (sf) rating levels, respectively.

CREDIT ENHANCEMENT AND RESERVES
As of the January 2021 payment date, credit enhancement to the Class A Notes was 35.1%, up from 27.3% at the DBRS Morningstar initial rating. Credit enhancement to the Class B Notes was 28.1%, up from 21.8% at the DBRS Morningstar initial rating. Credit enhancement consists of subordination of the junior notes.

The transaction benefits from a liquidity reserve, which covers senior fees, swap payments, and interest payments on the Notes and is currently at its target amount of GBP 2.0 million. The transactions also benefits from a maintenance reserve funded to GBP 12.3 million, which may be withdrawn to cover maintenance costs upon the occurrence of certain triggers.

BNP Paribas Securities Services SCA/London acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of BNP Paribas Securities Services SCA/London, 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 rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA acts as the swap counterparty for the transaction. DBRS Morningstar's public Long-Term Critical Obligations Rating of Banco Santander SA at AA (low) 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 structure 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 continue to increase in the coming months for many 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, given the exposure to corporate and SME borrowers, DBRS Morningstar increased its expected default rate for obligors in certain industries, applied an additional haircut to its base case recovery rate, and considered reported payment holidays in its cash flow analysis. As of 31 December 2020, 0.5% of the outstanding portfolio were in a payment holiday.

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 28 January 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/372842/global-macroeconomic-scenarios-january-2021-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.

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.

On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated transactions in Europe exposed to corporate and SMEs borrowers. For more details please see https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://www.dbrsmorningstar.com/research/373262.

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” (8 February 2021).

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

A review of the transaction legal documents was not conducted as the legal documents have 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 these ratings include investor reports, loan-level data, and historical performance data provided by LPUK.

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 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 on this transaction took place on 14 July 2020, when DBRS Morningstar confirmed its ratings of the Class A and Class B Notes at AAA (sf) and AA (high) (sf), respectively.

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 ratings (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD, LGD and RV Haircut for the pool 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.

-- Expected PD: 3.1%;
-- LGD: 65.1% and 63.6% at the AAA (sf) and AA (high) (sf) rating levels, respectively;
-- RV Haircut: 39.8% and 36.8% at the AAA (sf) and AA (high) (sf) rating levels, respectively.

-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD, and RV Haircut increase by a certain percentage over the base case assumption. For example, if the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf), assuming no change in the RV Haircut. If the RV Haircut increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the PD and LGD. Furthermore, if the PD, LGD and RV Haircut all increase by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in RV Haircut, expected rating of AAA (sf)
-- 50% increase in RV Haircut, expected rating of AAA (sf)
-- 25% increase in PD and LGD, expected rating of AAA (sf)
-- 50% increase in PD and LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and LGD, and 25% increase in RV Haircut, expected rating of AA (high) (sf)
-- 25% increase in PD and LGD, and 50% increase in RV Haircut, expected rating of AA (sf) -- 50% increase in PD and LGD, and 25% increase in RV Haircut, expected rating of AA (sf) -- 50% increase in PD and LGD, and 50% increase in RV Haircut, expected rating of AA (low) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in RV Haircut, expected rating of AA (high) (sf)
-- 50% increase in RV Haircut, expected rating of AA (sf)
-- 25% increase in PD and LGD, expected rating of AA (sf)
-- 50% increase in PD and LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and LGD, and 25% increase in RV Haircut, expected rating of AA (sf) -- 25% increase in PD and LGD, and 50% increase in RV Haircut, expected rating of A (high) (sf)
-- 50% increase in PD and LGD, and 25% increase in RV Haircut, expected rating of A (high) (sf)
-- 50% increase in PD and LGD, and 50% increase in RV Haircut, expected rating of 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. 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.

These ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 10 May 2019

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: http://www.dbrsmorningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (8 February 2021)
https://www.dbrsmorningstar.com/research/373435/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 CLOs Backed by Loans to European SMEs and SME Diversity Model v2.4.2.0 (30 September 2020) https://www.dbrsmorningstar.com/research/367642/rating-clos-backed-by-loans-to-european-smes.
-- 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.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
https://www.dbrsmorningstar.com/research/350234/legal-criteria-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.
-- 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 (30 September 2020) https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021)
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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].