DBRS Morningstar Confirms Ratings on Globaldrive Dealer Floorplan UK 2021 plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) ratings on the Class A1 and Class A2 Notes (together, the Class A Notes) issued by Globaldrive Dealer Floorplan UK 2021 plc.

The ratings on the Class A Notes address the timely payment of capped interest amounts and the ultimate repayment of principal by the legal maturity date.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of realised losses, principal payment rates, and yield rates as of the November 2022 payment date;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AAA (sf) rating level in various dealer concentration and liquidation scenarios; and
-- No early amortisation events.

The transaction is a securitisation of auto wholesale receivables originated in the UK by FCE Bank plc (FCE) and related to the purchase and financing by motor vehicle dealers of their new car/truck inventory. Ford dealers and used vehicles are excluded. FCE’s ultimate parent company is Ford Motor Company USA. The transaction features the senior payment of a capped interest on the Class A Notes and the junior payment of interest beyond this cap, as well as the variation of the coupon on the Class A1 and Class A2 Notes depending on whether the holder of the Class A1 Notes is a conduit and certain conditions on the maturity of the receivables.

The transaction is in its revolving period, which is currently scheduled to terminate on the payment date in November 2023 in the absence of any early amortisation events. The legal final maturity date is on the payment date in November 2026.

PORTFOLIO PERFORMANCE
As of the November 2022 payment date, the three-month average principal payment rate was 38.2%, higher than the early amortisation trigger level of 18.0%, and the annualised portfolio yield was 22.8% (including interest income generated through the discount mechanism). Realised losses were zero.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its default rate expectation for the portfolio at 4.0%, and an increase in the default rate up to 52.5% at the AAA (sf) rating level and a decline of the payment rate by 55.0% at the AAA (sf) rating level.

CREDIT ENHANCEMENT
Credit enhancement to the Class A Notes consists of the subordination of the unrated Class B Notes and overconcentration from ineligible receivables (those where the dealer concentration exceeds 2.0%) and stopship receivables (those for which Ford UK has temporarily stopped the delivery of vehicles to a dealer to allow repairs for quality or other reasons).

As of the November 2022 payment date, credit enhancement to the Class A Notes was 99.4%, which is above the minimum required level of 30.0%.

The transaction benefits from a nonamortising reserve available to cover senior fees and capped interest amounts on the Class A Notes. As of the November 2022 payment date, the reserve’s outstanding balance was at its target level of GBP 3.0 million.

Barclays Bank PLC (Barclays) is the account bank for the transaction. Based on DBRS Morningstar’s account bank reference rating of A (high) on Barclays (which is one notch below the DBRS Morningstar public Long Term Critical Obligations Rating of AA (low)), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent to the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction is exposed to interest rate risk due to the difference between the floating-rate indices applied to the Class A Notes and to the receivables. No hedging counterparty has been appointed for the transaction and DBRS Morningstar applied its “Interest Rate Stresses for European Structured Finance Transactions” methodology.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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 (17 May 2022).

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” (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 the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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/401817/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 investor reports provided by FCE.

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 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.

This is the first rating action since the Initial Rating Date.

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.

Sensitivity analysis: to assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios under the cash flow approach, as compared to the parameters used to determine the rating (the base case):

-- Annualised default rate: 4.0%.
-- Monthly principal payment rate: 16.0%
-- Maximum annualised default rate stress under the AAA (sf) scenario: 52.5%.
-- Maximum monthly principal payment rate decline under the AAA (sf) scenario: 55.0%.

Scenario 1: A 25% increase in the annualised default rate
Scenario 2: A 50% increase in the annualised default rate
Scenario 3: A 25% decrease in the monthly principal payment rate
Scenario 4: A 50% decrease in the monthly principal payment rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios are:
-- Class A Notes: AAA (sf), AAA (sf), AAA (sf), BBB (high) (sf), respectively.

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: Natalia Coman, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 30 November 2021

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 Structured Finance Transactions Methodology (15 July 2022),
https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Rating European Auto Wholesale Securitisations (9 November 2022),
https://www.dbrsmorningstar.com/research/405138/rating-european-auto-wholesale-securitisations.
-- Interest Rate Stresses for European Structured Finance Transactions (22 September 2022), https://www.dbrsmorningstar.com/research/402943/interest-rate-stresses-for-european-structured-finance-transactions.
-- Legal Criteria for European Structured Finance Transactions (22 July 2022),
https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022),
https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- 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].