Press Release

DBRS Morningstar Upgrades and Confirms Ratings on Two Globaldrive Auto Receivables UK Transactions

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June 17, 2021

DBRS Ratings Limited (DBRS Morningstar) upgraded and confirmed its ratings on the bonds issued by Globaldrive Auto Receivables UK 2019-A plc (GAR UK 2019-A) as follows:

-- Class A Notes confirmed at AAA (sf)
-- Class B Notes upgraded to AAA (sf) from AA (high) (sf)

The ratings on the Class A Notes and Class B Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

DBRS Morningstar confirmed its ratings on the bonds issued by Globaldrive Auto Receivables UK 2020-B plc (GAR UK 2020-B) as follows:

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

The ratings on the Class A Notes and Class B Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

For each transaction, the rating actions follow an annual review and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2021 payment date.
-- Probability of default (PD), loss given default (LGD), and residual value (RV) haircut assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the rated 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.

Both transactions are securitisations of auto loans granted to private and commercial borrowers in the United Kingdom for the purchase of new and used cars and light commercial vehicles. The receivables are originated and serviced by FCE Bank plc (FCE). Both transactions are subject to residual value risk through the presence of personal contract purchase agreements. Each underlying portfolio is static. The legal final maturity date is on the payment date in September 2026 and October 2027, for GAR UK 2019-A and GAR UK 2020-B, respectively.

PORTFOLIO PERFORMANCE
In both transactions, delinquencies have been relatively low since the DBRS Morningstar initial rating. As of the May 2021 payment date, the two- to three-month arrears ratio and the 90+ delinquency ratio were both at 0.0% in the case of GAR UK 2019-A, while they were at 0.0% and 0.1%, respectively, in the case of GAR UK 2020-B. As of the May 2021 payment date, cumulative defaults represented 0.3% and 0.1% of the total purchased receivables since closing for GAR UK 2019-A and GAR UK 2020-B, respectively. As of the May 2021 payment date, there were no loans in a payment holiday granted in the context of the coronavirus pandemic as FCE elected to repurchase such receivables in both portfolios. As of the May 2021 payment date, residual value represented 66.3% and 53.0% of the outstanding portfolio balance, for GAR UK 2019-A and GAR UK 2020-B, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
For each transaction, DBRS Morningstar conducted a loan-by-loan analysis of the remaining pool of receivables and has updated its base case PD to 3.0% and 3.4%, for GAR UK 2019-A and GAR UK 2020-B, respectively, from 2.9% and 3.3%, respectively.

In the case of GAR UK 2019-A, DBRS Morningstar updated its LGD assumption at the AAA (sf) rating level to 58.9% from 58.7% at the last annual review and maintained its RV haircut at the AAA (sf) rating level at 40.7%.

In the case of GAR UK 2020-B, DBRS Morningstar also updated its LGD assumption at the AAA (sf) and AA (high) (sf) rating levels to 57.5% and 55.6%, respectively, from 57.2% and 55.3% at closing and maintained its RV haircut at AAA (sf) and AA (sf) at 40.7% and 37.0%, respectively.

CREDIT ENHANCEMENT
In each transaction, the CE to the Class A Notes and Class B Notes consists of the subordination of their respective junior notes.

In the case of GAR UK 2019-A, the CE increased since the last annual review as follows:
-- CE to the Class A Notes to 58.7% from 35.6%
-- CE to the Class B Notes to 41.3% from 25.0%

In the case of GAR UK 2020-B, the CE increased since the DBRS Morningstar initial rating as follows:
-- CE to the Class A Notes to 31.1% from 26.0%
-- CE to the Class B Notes to 21.9% from 18.3%

Each transaction benefits from a nonamortising reserve fund, which covers senior fees, swap payments, and interest on the rated notes and is also available to redeem the rated notes on the legal final maturity date. The liquidity reserves are currently funded at their target level of GBP 2.9 million and GBP 7.0 million, in GAR UK 2019-A and GAR UK 2020-B, respectively.

Elavon Financial Services DAC, U.K. branch (Elavon UK) acts as the account bank for both transactions. Based on the DBRS Morningstar private rating of Elavon UK, 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.

Lloyds Bank Corporate Markets plc (Lloyds) acts as the swap counterparty for both transactions. DBRS Morningstar's private rating of Lloyds is consistent with 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 these transactions, DBRS Morningstar applied an additional haircut to its base case recovery rate in each case.

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. 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 ratings is: “Master European Structured Finance Surveillance Methodology” (8 February 2021).

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

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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 loan-level data, amortisation profile and investor reports provided by FCE.

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

In both transactions, 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.

In the case of GAR UK 2020-B, this is the first rating action since the Initial Rating Date.

In the case of GAR UK 2019-A, the last rating action on this transaction took place on 18 September 2020, when DBRS Morningstar confirmed its ratings of AAA (sf) and AA (high) (sf) on the Class A Notes and the Class B Notes, respectively.

Regarding GAR UK 2020-B, the lead analyst responsibilities for this transaction have been transferred to Natalia Coman.

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 with the parameters used to determine the ratings (the Base Case):

-- DBRS Morningstar expected a lifetime base case PD and LGD 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.
-- Regarding the GAR UK 2019-A transaction, the base case PD, LGD, and RV haircut assumptions at the AAA (sf) rating level are: PD of 3.0%, LGD of 58.9%, and RV haircut of 40.7%.
-- Regarding the GAR UK 2020-B transaction, the base case PD, LGD, and RV haircut assumptions at the AAA (sf) rating level are: PD of 3.4%, LGD of 57.5% and 55.6% at the AAA (sf) and AA (high) (sf) rating levels, respectively, and RV haircut of 40.7% and 37.0% 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.

In the case of the GAR 2019-A transaction, for example, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in either the PD or LGD. Furthermore, if both the PD and LGD as well as the RV haircut increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf).

In the case of the GAR 2020-B transaction, for example, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating on the Class A Notes would be expected to remain at AAA (sf), assuming no change in either the PD or LGD. Furthermore, if both the PD and LGD as well as the RV haircut increase by 50%, the rating on the Class A Notes would be expected to fall to AA (low) (sf).

GAR UK 2019-A 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 both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)

GAR UK 2019-A Class B 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 both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)

GAR UK 2020-B 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 both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (high) (sf)

GAR UK 2020-B 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 both PD and LGD, expected rating of AA (high) (sf)
-- 50% increase in both PD and LGD, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (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. 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 for GAR UK 2019-A: 4 September 2019
Initial Rating Date for GAR UK 2020-B: 30 October 2020

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 these transactions can be found at: http://www.dbrsmorningstar.com/about/methodologies.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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