DBRS Morningstar Discontinues Ratings on NewDay Funding 2018-2, Confirms Ratings on Remaining NewDay Funding Transactions

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the notes issued in the following NewDay Funding-related transactions:

NewDay Funding 2019-1 plc:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
-- Class F Notes at B (high) (sf)

NewDay Funding 2019-2 plc:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
-- Class F Notes at B (high) (sf)

NewDay Funding Loan Note Issuer VFN-F1 V1:
-- Class A Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
-- Class F Notes at B (low) (sf)

NewDay Funding Loan Note Issuer VFN-F1 V2:
-- Class A Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)
-- Class F Notes at B (low) (sf)

NewDay Funding Master Issuer plc:
-- Series 2021-1, Class A1 Notes at AAA (sf)
-- Series 2021-1, Class A2 Notes at AAA (sf)
-- Series 2021-1, Class B Notes at AA (sf)
-- Series 2021-1, Class C Notes at A (low) (sf)
-- Series 2021-1, Class D Notes at BBB (low) (sf)
-- Series 2021-1, Class E Notes at BB (low) (sf)
-- Series 2021-1, Class F Notes at B (high) (sf)

NewDay Funding Master Issuer plc, Series 2021-2:
-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (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 A1, Class A2, Class B, Class C, Class D, and Class E Notes (together, the 2018-2 Notes) issued by NewDay Funding 2018-2 plc.

The discontinuations reflect the full repayment of the 2018-2 Notes on the scheduled redemption date of 15 December 2021. Prior to their repayment, the ratings and the outstanding principal balance of the 2018-2 Notes were as follows:

-- Class A1 Notes rated at AAA (sf) with an outstanding principal balance of GBP 150,000,000.00
-- Class A2 Notes rated at AAA (sf) with an outstanding principal balance of GBP 33,300,000.00
-- Class B Notes rated at AA (sf) with an outstanding principal balance of GBP 23,100,000.00
-- Class C Notes rated at A (low) (sf) with an outstanding principal balance of GBP 33,900,000.00
-- Class D Notes rated at BBB (low) (sf) with an outstanding principal balance of GBP 42,300,000.00
-- Class E Notes rated at BB (low) (sf) with an outstanding principal balance of GBP 23,700,000.00

Please refer to https://www.dbrsmorningstar.com/issuers/23462 for more information.

All the transactions are securitisations consisting of credit card receivables originated and/or acquired by NewDay Ltd. (NewDay or the Originator) in the United Kingdom.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The transaction’s 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 capabilities with respect to origination, underwriting, and servicing.
-- An operational risk review of the originator, 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 transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURES
The notes are part of the NewDay Funding-related master issuance structure, where all series of notes are supported by the same pool of receivables and are generally issued under the same requirements regarding servicing, amortisation events, priority of distributions, and eligible investments.

The transactions include a scheduled revolving period. During this period, additional receivables may be purchased and transferred to the securitised pool, 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. The servicer may extend the scheduled revolving period 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.

As certain notes are denominated in U.S. dollars (USD), there is a balance-guaranteed, cross-currency swap to hedge the currency risk between the British pound sterling (GBP)-denominated receivables and the USD-denominated notes. The interest rate mismatch risks between the mixed-interest rate collateral and floating-rate coupons of the notes are, to a degree, mitigated by the excess spread in the transactions and considered in DBRS Morningstar’s cash flow analysis. The transactions include series-specific liquidity reserves that are available to cover the shortfalls in senior expenses and interests on the notes.

COUNTERPARTIES
HSBC Bank plc is the account bank and swap collateral account bank for the transactions. Based on DBRS Morningstar’s private rating on HSBC Bank and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank and swap collateral account bank to be commensurate with the ratings assigned.

The counterparties providing the cross-currency swap have a DBRS Morningstar Long-Term Issuer Rating which meets DBRS Morningstar’s criteria to act in such capacity. The swap documentation also contains downgrade provisions consistent with DBRS Morningstar’s criteria.

PORTFOLIO ASSUMPTIONS AND COVID-19 CONSIDERATIONS
The most recent November 2021 servicer report of the securitised portfolio shows an improved total payment rate of 14.9%, including the interest collections, after reaching a record low of 10.4% in April 2020 due to the impact of the Coronavirus Disease (COVID-19). The payment rates appear to have stabilised, but remain slightly below historical levels. After removing the interest collections, the estimated monthly principal payment rates (MPPRs) of the securitised portfolio have been stable above 8%. Based on the analysis of historical data, macroeconomic factors, and the portfolio-specific coronavirus adjustments, DBRS Morningstar maintains the expected MPPR at 8%.

Similarly, the portfolio yield was largely stable over the reported period until March 2020. The most recent performance in October 2021 shows a total yield of 30.1%, which increased from the record low of 26.5% in May 2020 because of higher delinquencies and the forbearance measures (i.e., payment holidays and payment freeze) offered. Based on the observed trend and the potential yield compression caused by the forbearance measures, DBRS Morningstar maintained the expected yield at 24.5%.

The reported historical charge-off rates were high but stable at approximately 16% until March 2020. The most recent performance in October 2021 shows a charge-off rate of 8.6% after reaching a record high of 17.6% in April 2020. Based on the analysis of delinquency trends, macroeconomic factors, and the portfolio-specific adjustment caused by the impact of coronavirus in November 2020, DBRS Morningstar maintained the expected charge-off rate at 18%.

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.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an immediate economic contraction, leading in some cases to 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 credit card portfolios. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 9 December 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/389454/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2021-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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: “Rating European Consumer and Commercial Asset-Backed Securitisations” (29 October 2021).

Other methodologies referenced in these transactions 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 these transactions in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted.

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

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include the following data provided by the arrangers, NewDay Cards, or monthly servicer reports:
-- Securitised portfolio: Receivables balances, payment rates, yield, charge-off rates, and purchase rates for the month of October 2021;
-- Total managed portfolio: Monthly historical dynamic data from June 2007 to August 2021 and static data from Q1 2008 to Q2 2021, including the organic and acquired portfolios in respect of receivables balances, payment rates, gross charge-offs, gross yield, delinquencies, purchase rates, and recoveries; and
-- Stratification tables in relation to the total pool as of 31 August 2021.

Additional data was also provided with regard to utilisation rate, credit limits, dilutions, and interest rates.

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 Funding 2018-2 plc, NewDay Funding 2019-1 plc, NewDay Funding 2019-2 plc, and NewDay Funding Loan Note Issuer VFN-F1 V1 took place on 18 December 2020. The last rating action on NewDay Funding Loan Note Issuer VFN-F1 V2 took place on 16 November 2020. The last rating action on NewDay Funding Master Issuer plc, Series 2021-1 and Series 2021-2 took place on 9 February 2021 and 8 July 2021, respectively. For the rating actions taken, please refer to each individual transaction.

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 24.5%
-- Expected MPPR of 8%
-- Expected Charge-Off Rate of 18%

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 Funding 2019-1 plc:
-- Class A Notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (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), BB (high) (sf), BB (high) (sf), BB (low) (sf).
-- Class E Notes: B (low) (sf), BB (low) (sf), B (high) (sf), below B (low) (sf).
-- Class F Notes: below B (low) (sf), B (sf), below B (low) (sf), below B (low) (sf).

NewDay Funding 2019-2 plc:
-- Class A Notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (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), BB (high) (sf), BB (high) (sf), BB (low) (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 Funding Loan Note Issuer VFN-F1 V1:
-- Class A Notes: BB (sf), BB (high) (sf), BB (sf), BB (low) (sf).
-- Class E Notes: B (low) (sf), B (high) (sf), B(sf), below B (low) (sf).
-- Class F Notes: below B (low) (sf), B (low) (sf), below B (low) (sf), below B (low) (sf).

NewDay Funding Loan Note Issuer VFN-F1 V2:
-- Class A Notes: BBB (low) (sf), BBB (low) (sf), BBB (low) (sf), BBB (low) (sf).
-- Class E Notes: below B (low) (sf), B (high) (sf), B(sf), below B (low) (sf).
-- Class F Notes: below B (low) (sf), B (low) (sf), below B (low) (sf), below B (low) (sf).

NewDay Funding Master Issuer plc:
-- Series 2021-1, Class A1 Notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (sf)
-- Series 2021-1, Class A2 Notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (sf)
-- Series 2021-1, Class B Notes: AA (low) (sf), A (high) (sf), A (high) (sf), A (sf)
-- Series 2021-1, Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf)
-- Series 2021-1, Class D Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (low) (sf)
-- Series 2021-1, Class E Notes: B (sf), BB (low) (sf), B (high) (sf), below B (low) (sf)
-- Series 2021-1, Class F Notes: below B (low) (sf), B (sf), below B (low) (sf), below B (low) (sf)

NewDay Funding Master Issuer plc, Series 2021-2:
-- Class A1 notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (sf)
-- Class A2 notes: AA (high) (sf), AA (sf), AA (sf), AA (low) (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), BB (high) (sf), BB (high) (sf), BB (low) (sf)
-- Class E notes: B (low) (sf), B (low) (sf), B (high) (sf), below B (low) (sf)
-- Class F notes: below B (low) (sf), B (sf), below B (low) (sf), below B (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: 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: Christian Aufsatz, Managing Director
Initial Rating Dates:

NewDay Funding 2018-2 plc: 22 October 2018
NewDay Funding 2019-1 plc: 28 May 2019
NewDay Funding 2019-2 plc: 9 September 2019
NewDay Funding Loan Note Issuer VFN-F1 V1: 15 December 2017
NewDay Funding Loan Note Issuer VFN-F1 V2: 15 December 2017
NewDay Funding Master Issuer plc: 25 January 2021
NewDay Funding Master Issuer plc, Series 2021-2: 25 June 2021

DBRS Ratings Limited
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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 (29 October 2021), https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- 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 (16 September 2021),
https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021),
https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2021),
https://www.dbrsmorningstar.com/research/384920/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-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].