DBRS Morningstar Finalises Provisional Rating on Bumper UK 2021-1 Finance plc

DBRS Ratings Limited (DBRS Morningstar) finalised its provisional rating of AAA (sf) on the Class A Notes issued by Bumper UK 2021-1 Finance plc (the Issuer). The Issuer is a public limited company incorporated under the laws of England and Wales.

DBRS Morningstar did not assign a rating to the Class B Note issued in this transaction. The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date.

This transaction represents the issuance of notes backed by a revolving pool of lease receivables, balloon payment receivables, and residual value (RV) claims related to auto lease agreements granted by LeasePlan UK Limited (LPUK or the originator) to corporate, small and medium-size enterprise (SME), retail, and public-sector clients in England and Wales. The portfolio is serviced by LPUK.

The transaction incorporates a one-year revolving period, during which the originator may sell additional lease receivables, balloon payment receivables, and their related RV claims, subject to eligibility criteria, concentration limits, performance triggers, and other conditions set out in the transaction documents.

The transaction represents a further securitisation transaction backed by auto lease agreements through European branches or subsidiaries of LeasePlan Corporation N.V. (LPC) in Europe. DBRS Morningstar has previously assigned ratings to other LPC-sponsored transactions in the United Kingdom, the Netherlands, France, and Germany.

DBRS Morningstar based its rating on a review of the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, reserve funds, and excess spread;
-- Credit-enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss and residual value loss under various stressed cash flow assumptions for the Class A Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- LPUK’s capabilities with regard to originations, underwriting, and servicing and its financial strength;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the seller’s portfolio;
-- The sovereign rating of the United Kingdom of Great Britain and Northern Ireland, currently at AA (high) with a Stable trend; and
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction incorporates a single waterfall that facilitates the distribution of the available distribution amount. The notes amortise sequentially, subject to principal redemption amounts, and funds are not allocated to the redemption of principal of the Class B Note until after the Class A Notes have been redeemed in full.

An amortising liquidity reserve, initially set at 0.63% of the Class A Notes is available to the structure. The transaction documents foresee a floor of GBP 2.0 million for the liquidity reserve. The reserve provides liquidity to the Class A Notes while also ultimately providing credit enhancement. It is available to repay principal on the notes when the outstanding principal balance of the portfolio reaches zero.

All underlying contracts are fixed rate while floating-rate rated notes have been issued. The Class A Notes are indexed to daily compounded Sterling Overnight Index Average (Sonia). Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by Banco Santander SA.

COUNTERPARTIES
The Issuer bank account is held at BNP Paribas Securities Services, London Branch (BNPSS). DBRS Morningstar privately rates BNPSS and concluded that it meets the minimum criteria to act in its capacity as the account bank. The transaction contains downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

Banco Santander SA is the swap counterparty for the transaction. The DBRS Morningstar public Long-Term Issuer Rating on Banco Santander SA is at A (high) with a Stable trend. The hedging documents contain downgrade provisions consistent with DBRS Morningstar’s criteria.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

CORONAVIRUS CONSIDERATIONS
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 structured finance 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. For this transaction, DBRS Morningstar applied a moderate haircut to its expected recovery rate and adjusted expected default rates associated with corporate lessees.

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.

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 rating 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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 Leaseplan Corporation N.V.

DBRS Morningstar received the following data and information:
-- Quarterly dynamic loss data from Q1 2012 to Q4 2020;
-- Annual cumulative default data from 2012 to 2020;
-- Monthly recovery data from January 2012 to October 2020 - split into vehicle sales and cash recoveries;
-- Annual early termination data from 2014 to 2020;
-- Monthly portfolio data from January 2014 to December 2020;
-- Residual value performance data split by unit from 2014 to 2020;
-- Lease-by-lease portfolio data as at 31 January 2021 and the related stratification tables and amortisation schedule;
-- Monthly customer settlement data from January 2015 to December 2020.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

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 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.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

This is the first rating action since the Initial Rating Date.

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, as compared to the parameters used to determine the rating (the base case):

-- Expected default: 3.4%
-- Expected recovery rate: 57.9%.
-- Loss given default (LGD): 65.1% for the AAA (sf) scenario.
-- RV loss: 39.8%. for the AAA (sf) scenario.

Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.

DBRS Morningstar concludes that the expected rating under the eight stress scenarios will be:
-- Class A Notes: AA (high) (sf), AA (sf), AAA (sf), AA (sf), AA (low) (sf), AA (high) (sf), AA (sf), A (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: 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.

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

Lead Analyst: Alex Garrod, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 22 February 2021

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.

-- 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 (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.
-- 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 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.
-- 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].