DBRS Morningstar Assigns New Ratings to NewDay Partnership Loan Note Issuer VFN-P1 V3

DBRS Ratings Limited (DBRS Morningstar) assigned new ratings to the NewDay Partnership Loan Note Issuer VFN-P1 V3 transaction as follows:

-- Class A Loan Note at AAA (sf)
-- Class B Loan Note at AA (sf)
-- Class C Loan Note at A (sf)
-- Class D Loan Note at A (low) (sf)
-- Class E Loan Note at BBB (high) (sf)

The ratings of the Class A, Class B, Class C, and Class D Loan Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The rating of the Class E Loan Note addresses the ultimate payment of interest and repayment of principal by the legal final maturity dates.

As the issuer is 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, DBRS Morningstar notes that the issuance by the issuer will not result in a downgrade or withdrawal of the ratings on the outstanding note series listed below:

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

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

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

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

DBRS Morningstar notes that the rating for the Class E Loan Note of NewDay Partnership Loan Note Issuer VFN-P1 V2 is corrected to addresses the ultimate payment of interest and repayment of principal by the legal final maturity date.

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 structure, 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 transaction 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 transaction includes a scheduled revolving period. During this period, the issuer may purchase additional receivables provided that the eligibility criteria set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer termination. If the notes are not fully redeemed at the end of the scheduled revolving period, the transaction enters into rapid amortisation.

The transaction includes a series-specific liquidity reserve that is available to cover the shortfalls in senior expenses and interest on the Class A, Class B, Class C, and Class D notes.

COUNTERPARTIES
Citibank N.A. is the account bank for the transaction. 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.

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 total principal payment rate performance as of June 2021 shows an MPPR of 20.6%, which recovered from the record low level of 16.5% in May 2020 based on the investor reports. 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 and inclusion of Amazon cards, DBRS Morningstar maintained the expected MPPR at 19.7%.

The portfolio yield is largely stable at around 20%, with the most recent performance at 22.72% in June 2021. DBRS Morningstar maintained its expected yield at 17.2% after considering the observed trends and the portfolio composition.

The reported historical charge-off rates were lower than 5% from 2015 until March 2020. The most recent performance in June 2021 shows an annualised charge-off rate of 5.8%, higher than the 4.8% in March 2021 based on the investor report. Based on the analysis of delinquency trends and the portfolio composition, DBRS Morningstar maintained the expected charge-off rate at 7.6%.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-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 the monthly investor 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 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.

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:

-- Class A Loan Note: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf).
-- Class B Loan Note: AA (sf), A (high) (sf), AA (low) (sf), A (high) (sf).
-- Class C Loan Note: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- Class D Loan Note: BBB (sf), BBB (high) (sf), BBB (high) (sf), BBB (low) (sf).
-- Class E Loan Note: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (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.

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

Lead Analyst: Michael Langholz, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 16 August 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: 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 (30 July 2021),
https://www.dbrsmorningstar.com/research/382486/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021),
https://www.dbrsmorningstar.com/research/382171/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].