DBRS Morningstar Confirms Ratings on E-CARAT 11 plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the Class A, Class B, Class C, Class D, Class E, Class F, and Class G notes issued by E-CARAT 11 plc as follows:

-- 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 (high) (sf)
-- Class F Notes at BB (sf)
-- Class G Notes at B (sf)

The rating on the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class B, Class C, Class D, Class E, Class F, and Class G notes address the timely payment of interest when most-senior tranche outstanding, otherwise the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses as of the January 2023 payment date.
-- Probability of default (PD), loss given default (LGD), and residual value (RV) haircut assumptions on the remaining receivables.
-- Current available credit enhancement to the rated notes to cover the expected losses at their respective rating levels.
The transaction is a securitisation of receivables related to both conditional sale and personal contract purchase (PCP) auto loan contracts granted by Vauxhall Finance plc (Vauxhall Finance) to borrowers in England, Wales, Scotland, and Northern Ireland. The underlying motor vehicles related to the finance contracts consist of both new and used passenger vehicles and light commercial vehicles. PCP agreements afford the borrower the option to turn in the purchased vehicle at contract maturity as an alternative to making a final balloon payment, which exposes the issuers to RV risk. Ancillary products (such as insurance, maintenance) are not included in the portfolio.

The transaction closed in March 2020 and included an initial 12-month revolving period, which ended on the April 2021 payment date. The legal final maturity date is on the May 2028 payment date.

PORTFOLIO PERFORMANCE
Delinquencies have been low since closing. As of the January 2023 payment date, loans two to three months in arrears and loans more than three months in arrears represented 0.1% and 0.2% of the outstanding portfolio balance, respectively, compared with 0.1% and 0.1%, respectively, at the last annual review. Gross cumulative credit defaults amounted to 0.4% of the initial portfolio balance, with cumulative recoveries of 50.8% to date. Cumulative voluntary terminations represented 0.5% of the initial portfolio balance, with cumulative recoveries of 87.7% to date. PCP handbacks were marginal, with cumulative recoveries of 100.0% to date. As of the January 2023 payment date, the cumulative net loss ratio stood at 0.98%, below the level of 1.25%, which triggers a switch of the amortisation of the notes to sequential from pro rata.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the pool of receivables and updated its base case PD and LGD assumptions to 5.2% and 23.7%, respectively, from 5.8% and 21.7%, respectively, at the last annual review. DBRS Morningstar also updated its residual value haircuts to 40.3%, 32.6%, 24.1%, 20.9%, 11.4%, 9.8%, and 3.5% at AAA (sf), AA (sf), A (sf), BBB (high) (sf), BB (high) (sf), BB (sf), and B (sf), respectively, from 43.0%, 37.7%, 30.7%, 27.4%, 20.3%, 17.6%, and 6.0%, respectively, at the last annual review. The assumptions were updated following additional historical data received for the subsequent transaction, E-CARAT 12 plc.

The transaction is subject to voluntary termination (VT) risk, as under the UK Consumer Credit Act, the borrower has the right to terminate a consumer loan agreement after paying at least half of the total amount payable, provided that the vehicle returns to the finance provider in good condition. As of the January 2023 payment date, 99.4% of the PCP receivables had an original term of four years or longer, which poses an increased VT risk as shown in DBRS Morningstar’s subsequent commentary titled “U.K. Autos: Elongated PCP Terms Increase the Risk of Voluntary Termination”, available at https://www.dbrsmorningstar.com/research/326850/uk-autos-elongated-pcp-terms-increase-the-risk-of-voluntary-termination. DBRS Morningstar factored this risk into its base case PD and LGD assumptions.

CREDIT ENHANCEMENT
The credit enhancement (CE) to the rated notes consists of the subordination of the respective junior notes. As of the January 2023 payment date, the CE remained the same since the last annual review as follows:
-- CE to the Class A Notes at 27.7%
-- CE to the Class B Notes at 20.8%
-- CE to the Class C Notes at 15.8%
-- CE to the Class D Notes at 11.8%
-- CE to the Class E Notes at 8.5%
-- CE to the Class F Notes at 6.8%
-- CE to the Class G Notes at 5.0%

The credit enhancement levels have remained unchanged since the DBRS Morningstar initial rating due to the pro rata amortisation of the rated notes; the rated notes will continue to pay on a pro rata basis until certain performance triggers are breached.

The transaction benefits from a liquidity reserve available only if the principal collections are not sufficient to cover the shortfall in senior expenses, swap expenses, and Class A interest and, if not deferred in the waterfalls subject to the relevant principal deficiency ledger condition, the Class B, Class C, and Class D interest payments. As of the January 2023 payment date, the liquidity reserve was at its target level of GBP 2.6 million. As of the January 2023 payment date, all PDLs were clear.

HSBC Bank plc (HSBC Bank) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of HSBC Bank, 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 ratings assigned to the rated notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

BNP Paribas SA (BNP Paribas) acts as the swap counterparty for the transaction. DBRS Morningstar's public Long Term Critical Obligations Rating of BNP Paribas SA at AA (high) 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.

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.

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” (21 December 2022), https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology.

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.

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 loan-level data and investor reports provided by Vauxhall Finance.

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 this transaction took place on 1 March 2022, when DBRS Morningstar confirmed its ratings on the Class A, Class B, Class C, Class D, Class E, and Class F notes at AAA (sf), AA (sf), A (sf), BBB (high) (sf), BB (high) (sf), and BB (sf), respectively, and upgraded its rating on the Class G Notes to B (sf) from B (low) (sf).

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.
-- The base case PD and LGD of the current pool of loans are 5.2% and 23.7%, respectively.
-- The RV haircuts of 40.3%, 32.6%, 24.1%, 20.9%, 11.4%, 9.8% and 3.5% at AAA (sf), AA (sf), A (sf), BBB (high) (sf), BB (high) (sf), BB (sf), and B (sf), 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. For example, if the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to fall to AA (low) (sf), ceteris paribus. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to fall to AA (sf), ceteris paribus. Furthermore, if the PD, LGD, and RV haircut increase by 50%, the rating of the Class A Notes would also be expected to fall to A (sf), ceteris paribus.

Class A 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 (sf)
-- 50% increase in both PD and LGD, expected rating of AA (low) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of A (high) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of A (high) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of A (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of A (high) (sf)
-- 50% increase in RV haircut, expected rating of A (sf)
-- 25% increase in both PD and LGD, expected rating of A (high) (sf)
-- 50% increase in both PD and LGD, expected rating of A (low) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of A (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of A (low) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BBB (high) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BBB (high) (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of A (low) (sf)
-- 50% increase in RV haircut, expected rating of BBB (sf)
-- 25% increase in both PD and LGD, expected rating of A (low) (sf)
-- 50% increase in both PD and LGD, expected rating of BBB (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BBB (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BBB (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BBB (low) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BBB (low) (sf)

Class D Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of BBB (low) (sf)
-- 50% increase in RV haircut, expected rating of BB (high) (sf)
-- 25% increase in both PD and LGD, expected rating of BBB (low) (sf)
-- 50% increase in both PD and LGD, expected rating of BB (high) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BBB (low) (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BB (high) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BB (high) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BB (sf)

Class E Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of BB (high) (sf)
-- 50% increase in RV haircut, expected rating of BB (high) (sf)
-- 25% increase in both PD and LGD, expected rating of BB (high) (sf)
-- 50% increase in both PD and LGD, expected rating of BB (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BB (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BB (low) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BB (low) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of BB (low) (sf)

Class F Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of BB (low) (sf)
-- 50% increase in RV haircut, expected rating of BB (low) (sf)
-- 25% increase in both PD and LGD, expected rating of BB (low) (sf)
-- 50% increase in both PD and LGD, expected rating of BB (low) (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of BB (low) (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of B (high) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of B (high) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of B (high) (sf)

Class G Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of B (sf)
-- 50% increase in RV haircut, expected rating of B (sf)
-- 25% increase in both PD and LGD, expected rating of B (sf)
-- 50% increase in both PD and LGD, expected rating of B (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of B (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of B (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of B (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of B (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: Natalia Coman, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 24 February 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 this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

--Master European Structured Finance Surveillance Methodology (21 December 2022),
https://www.dbrsmorningstar.com/research/407695/master-european-structured-finance-surveillance-methodology.
--Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022),
https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
--Rating European Structured Finance Transactions Methodology (15 July 2022),
https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
--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.
--Derivative Criteria for European Structured Finance Transactions (20 September 2021),
https://www.dbrsmorningstar.com/research/384624/derivative-criteria-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.
--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].