DBRS Morningstar Confirms Ratings on NewDay Partnership Funding-Related Transactions

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on 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 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)

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

NewDay Partnership 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 Loan Note Issuer VFN-P1 V3:
-- V3 Class A Loan Note at AAA (sf)
-- V3 Class B Loan Note at AA (sf)
-- V3 Class C Loan Note at A (sf)
-- V3 Class D Loan Note at A (low) (sf)
-- V3 Class E Loan Note at BBB (high) (sf)

The ratings address the timely payment of scheduled interest and the ultimate payment of principal by the legal maturity date.

These transactions 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 rating actions follow an annual review of these transactions and are based on the following analytical considerations:
-- Portfolio asset performance of charge-off, monthly principal payment, and yield rates as of the April 2022 payment date.
-- The current available credit enhancement to the rated notes to withstand various stress cashflow scenarios based on DBRS Morningstar’s expectation of asset performance.
-- The transaction parties’ financial strength regarding their respective roles.
-- DBRS Morningstar’s sovereign rating of 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 transactions are part of NewDay Partnership Funding’s master issuance structure, where all series of notes and related issuers 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 individually scheduled revolving periods. During the program-level revolving period, additional receivables may be purchased, provided that the eligibility criteria set out in the transaction documents are satisfied. The revolving period of each transaction or the entire program 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 of transactions by up to 12 months if permitted. If the notes in a transaction are not fully redeemed at the end of the related scheduled revolving period, the transaction enters into a rapid amortisation.

The transactions include series-specific liquidity reserves available to cover the shortfalls in senior expenses and interest on the Class A, Class B, Class C, and Class D Notes. The reserve of VFN-P1 V1 only covers the senior expenses and Class A Notes interest.

PORTFOLIO PERFORMANCE, ASSUMPTIONS, AND KEY DRIVERS
Starting in June 2021, certain receivables related to the Amazon Classic card have been included in the securitised pool, in addition to the existing retailers (Foundation) and Amazon Platinum accounts. As of 30 April 2022, Amazon Platinum and Amazon Classic comprised 23.3% and 4.2% of the securitised pool, respectively.

As the performance of Foundation, Amazon Platinum, and Amazon Classic cards are substantially different, DBRS Morningstar considered the performance and projected share of respective receivable type in the expected asset assumptions below.

The DBRS Morningstar-estimated monthly principal payment rates (MPPRs) were largely stable at higher than 20% over the reported period until March 2020. After the total payment rate reached a record low of 16.5% in July 2020, it recovered to 20.1% by the end of April 2022. DBRS Morningstar notes that the historical payment rates for Amazon Platinum have been significantly higher than Foundation or Amazon Classic, which have the lowest payment rates among three receivable types. Based on its analysis of historical data and the forecast shares of each receivable type, DBRS Morningstar elected to maintain the expected MPPR at 19.7%.

On the other hand, the portfolio yield has been largely stable at around 20%, with the most recent level at 20.68% as of April 2022. The Amazon Platinum product yield is significantly lower than other receivable types, reflecting the different risk profiles and pricing strategy. In comparison, Amazon Classic shows a yield slightly higher than the Foundation receivables. Based on the stable trend, DBRS Morningstar maintained its expected yield at 17.2% after excluding spend-related finance yield.

The reported historical charge-off rates were less than 5% between 2015 and March 2020 when initial Coronavirus Disease (COVID-19) pandemic occurred. The most recent performance in April 2022 shows an annualised charge-off rate of 5.06%, similar to the historical levels before March 2020. Historically Amazon Platinum and Foundation receivables have similar charge-off levels due to the prime credit profile while Amazon Classic has significantly higher levels. Based on its analysis of historical data and the forecast shares of each receivable type, DBRS Morningstar maintained the expected charge-off rate at 7.6%.

DBRS Morningstar continued 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.

COUNTERPARTIES
Citibank, N.A. (Citi) is the account bank for all the transactions. Based on DBRS Morningstar’s Long-term Issuer Rating of AA (low) on Citi 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

Notes:
All figures are in British pounds sterling unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology” (19 May 2022).

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 principal methodology.

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/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 rating actions include data and investor reports provided by NewDay, including:
-- Receivables balances, payment rates, yield, and purchase rates from January 2007 to April 2022.
-- Delinquencies from December 2007 to April 2022.
-- Charge-offs from January 2009 to April 2022.
-- Monthly evolution of the portfolio composition of Foundation, Amazon Premium, and Amazon Classic receivables from November 2020 to April 2022.

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

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

At the time of the initial ratings for NewDay Partnership Funding 2017-1 plc and NewDay Partnership Funding 2020-1 plc, DBRS Morningstar was supplied with third-party assessments. DBRS Morningstar was not supplied with third-party assessments for NewDay Partnership Funding Loan Notes VFN-P1 sub-series. 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, NewDay Partnership Loan Note Issuer VFN-P1 V1, NewDay Partnership Loan Note Issuer VFN-P1 V2, and NewDay Partnership Funding 2020-1 took place on 8 June 2021, when DBRS Morningstar confirmed all the related ratings. The last rating action on NewDay Partnership Loan Note Issuer VFN-P1 V3 took place on 16 August 2021, when DBRS Morningstar assigned the initial ratings.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating:

-- 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: 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: BB (high) (sf), BBB (low) (sf), BBB (sf), BB (high) (sf).
-- Class E Notes: B (low) (sf), BB (sf), BB (low) (sf), B (sf).
-- Class F Notes: below B (low) (sf), B (low) (sf), B (low) (sf), below B (low) (sf).

NewDay Partnership Funding 2020-1 plc:
-- 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).

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

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

NewDay Partnership Funding Loan Note Issuer VFN-P1 V3:
-- V3 Class A Loan Note: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf).
-- V3 Class B Loan Note: AA (sf), AA (low) (sf), AA (sf), A (high) (sf).
-- V3 Class C Loan Note: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf).
-- V3 Class D Loan Note: BBB (sf), BBB (high) (sf), BBB (high) (sf), BBB (low) (sf).
-- V3 Class E Loan Note: BB (high) (sf), BBB (low) (sf), BBB (low) (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.

The 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 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; 16 August 2021 for NewDay Partnership Funding Loan Note Issuer VFN-P1 V3

DBRS Ratings Limited
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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.

-- Master European Structured Finance Surveillance Methodology (19 May 2022),
https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology
-- 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.
-- Rating European Structured Finance Transactions Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397034/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.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/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].