DBRS Morningstar Confirms Ratings on NewDay Partnership Funding-Related Transactions Following Asset Transfer, Discontinues Ratings on Certain Classes

DBRS Ratings Limited (DBRS Morningstar) confirmed the ratings on four NewDay Partnership Funding-related transactions as follows:

NewDay Partnership Funding 2017-1 plc
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V1
-- V1 Class A Loan Note at BBB (high) (sf)

NewDay Partnership Funding Loan Note Issuer VFN-P1 V2
-- V2 Class A Loan Note at AAA (sf)
-- V2 Class B Loan Note at AA (sf)
-- V2 Class C Loan Note at A (sf)
-- V2 Class D Loan Note at A (low) (sf)
-- V2 Class E Loan Note at BBB (high) (sf)

NewDay Partnership Funding 2020-1 plc
-- Class A3 Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (high) (sf)

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

DBRS Morningstar also discontinued its ratings on the Class E and Class F Notes in NewDay Partnership Funding Loan Note Issuer VFN-P1 subseries V1 following their full repayment on 7 June 2021. Prior to their repayment, the ratings on these Class E Notes and Class F Notes were BB (sf) and B (sf), respectively.

The notes are backed by a portfolio of cobranded credit card receivables (with limited legacy store cards and instalment credit) affiliated with high street and online retailers granted to individuals domiciled in the UK by NewDay Ltd. (NewDay or the originator) and serviced by NewDay Cards Ltd. (the servicer).

The ratings are based on the following analytical considerations:
-- The transactions’ capital structures, including form and sufficiency of available credit enhancement to support DBRS Morningstar’s revised expectation of charge-off, principal payment, and yield rates under various stress scenarios.
-- The ability of the transactions to withstand stressed cash flow assumptions and repay the notes.
-- The originator’s and the servicer’s capabilities with respect to origination, underwriting and servicing.
-- An operational risk review of the servicer, 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 on the United Kingdom of Great Britain and Northern Ireland at AA (high) with a Stable trend.
-- The consistency of the transactions’ legal structures with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURES
The notes are part of the master issuance structure of NewDay Partnership Funding, 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.

The transactions include scheduled revolving periods. During these periods, the issuer may purchase additional receivables provided that the eligibility criteria set out in the transaction documents are satisfied. The revolving periods may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer termination. The servicer may extend the scheduled revolving periods by up to 12 months. If the notes are not fully redeemed at the end of the respective scheduled revolving periods, the transactions enter into rapid amortisation.

The transactions include series-specific liquidity reserves that are available to cover the shortfalls in senior expenses and interest on the notes.

COUNTERPARTIES
Citibank N.A. is the account bank for all the transactions. Based on DBRS Morningstar’s rating on Citibank at AA (low) with a Stable trend 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.

ASSET TRANSFER
On 7 June 2021, NewDay transferred GBP 100 million of eligible receivables relating to the retailer Amazon.com, Inc. (Amazon) into the securitised pool, consisting of GBP 29 million receivables from Amazon Classic accounts and GBP 71 million from Amazon Platinum accounts. While Amazon Platinum has been part of the securitised pool (11.33% before the transfer), receivables related to Amazon Classic were added for the first time. After the initial transfer, Amazon Platinum and Amazon Classic would comprise 19.2% and 3.8% of the securitised pool, respectively. Simultaneously upon the transfer, the size of the subseries Class E and Class F Notes in NewDay Partnership Funding Loan Note Issuer VFN-P1 V1 would be redeemed in full and the size of the subordinated originator VFN would increase by 4.6% to 5.0%.

As NewDay may add up to GBP 100 million more in Amazon receivables in the future, with approximately the same split between Amazon Platinum and Amazon Classic receivables, DBRS Morningstar has considered in its analysis a transfer of up to GBP 200 million Amazon receivables.

PORTFOLIO ASSUMPTIONS AND 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 at higher than 20% over the reported period until March 2020. The most recent performance as of April 2021 shows a MPPR of 21.5%, which recovered from the record low level of 16.5% in May 2020 based on the investor report. The historical MPPRs for Amazon Platinum have been significantly higher, whereas the MPPRs for Amazon Classic have been lower compared with the non-Amazon retailers in the portfolio. Based on the analysis of historical data, the increasing share of Amazon Platinum and inclusion of Amazon Classic, DBRS Morningstar increased the expected MPPR to 19.7% from 16.0%.

The portfolio yield is largely stable at around 20%, with the most recent performance at 20.91% in April 2021. The yield of the Amazon Platinum product is significantly lower, reflecting the different risk profiles and pricing strategy of this product. Amazon Classic, on the other hand, shows a yield slightly higher than the non-Amazon portfolio. DBRS Morningstar revises its expected yield downward to 17.2% from 19.0% after consideration of the observed trend and the shift in the portfolio composition.

The reported historical charge-off rates were lower than 5% from 2015 until March 2020. The most recent performance in April 2021 shows an annualised charge-off rate of 6.4%, higher than the 4.8% in March 2021 based on the investor report. DBRS Morningstar observed similar charge-off levels for Amazon Platinum and non-Amazon retailers compared with significantly higher levels for Amazon Classic. Based on the analysis of delinquency trends and the addition of Amazon Classic, DBRS Morningstar revised the expected charge-off rate to 7.6% from 7.0%.

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.

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

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 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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.

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.

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 pounds sterling unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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.

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.

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.

The sources of data and information used for these ratings include data provided by NewDay or from the monthly servicer reports.

DBRS Morningstar received 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 January 2021.
-- Delinquencies from December 2007 to January 2021,
-- Charge-offs from January 2009 to January 2021,
-- Stratifications pre- and post-transfer as of 21 May 2021,
-- Stratifications split by Foundation, Amazon Platinum, and Amazon Classic as of January 2021, and
-- A forecast of the expected portfolio composition of the managed book in the next two years.

DBRS Morningstar notes that historical data for Amazon Platinum is available from April 2017 and from January 2018 for Amazon Classic.

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

At the time of the initial ratings, 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 NewDay Partnership Funding 2017-1 and NewDay Partnership Loan Note Issuer VFN-P1 V1 took place on 7 September 2020. The last rating action on NewDay Partnership Loan Note Issuer VFN-P1 V2 took place on 20 November 2020 following an amendment, except for the V2 Class D Loan Note, to which DBRS Morningstar assigned a rating on 15 January 2021. For NewDay Partnership Funding 2020-1, 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 ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings:

-- Expected Yield Rate of 17.2%
-- Expected MPPR of 19.7%
-- Expected Charge-Off Rate of 7.6%

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:

NewDay Partnership Funding 2017-1 plc:
-- Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf).
-- Class B Notes: AA (low) (sf), A (high) (sf), A (high) (sf), A (sf).
-- Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- Class D Notes: BB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf).
-- Class E Notes: B (high) (sf), BB (low) (sf), BB (sf), B (high) (sf).
-- Class F Notes: below B (low) (sf), B (sf), B (sf), B (low) (sf).

NewDay Partnership Funding Loan Note Issuer VFN-P1 V1:
-- V1 Class A Loan Note: BBB (sf), BBB (sf), BBB (sf), BB (high) (sf).

NewDay Partnership Funding Loan Note Issuer VFN-P1 V2:
-- V2 Class A Loan Note: AAA (sf), AAA (sf), AAA (sf), AA (high) (sf).
-- V2 Class B Loan Note: AA (sf), AA (low) (sf), AA (sf), A (high) (sf).
-- V2 Class C Loan Note: BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf).
-- V2 Class D Loan Note: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- V2 Class E Loan Note: BB (high) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf).

NewDay Partnership Funding 2020-1:
-- Class A3 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: BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (sf).
-- Class D Notes: BBB (low) (sf), BBB (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. 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.

The ratings are 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 Dates: 29 September 2017 for NewDay Partnership Funding 2017-1; 15 December 2017 for NewDay Partnership Funding Loan Note Issuer VFN-P1 V1; 15 December 2017 for NewDay Partnership Funding Loan Note Issuer VFN-P1 V2; 24 September 2020 for NewDay Partnership Funding 2020-1.

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 (6 April 2021), https://www.dbrsmorningstar.com/research/376314/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.
-- 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: 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].