Press Release

DBRS Morningstar Places NewDay Partnership-Related Transactions Under Review with Negative Implications

Consumer Loans & Credit Cards

June 08, 2023

DBRS Ratings Limited (DBRS Morningstar) placed its ratings of all the NewDay Partnership related transactions Under Review with Negative Implications (UR-Neg.) as follows:

NewDay Partnership Funding 2020-1 Plc:
-- Class A3 Notes rated AAA (sf)
-- Class B Notes rated AA (sf)
-- Class C Notes rated A (sf)
-- Class D Notes rated BBB (high) (sf)

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

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

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

These notes are part of the NewDay Partnership master trust structure, 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.

RATING RATIONALE
The UR-Neg. rating actions reflect deteriorating collateral performance, specifically the monthly principal payment rates (MPPRs), after the termination of the commercial relationship between NewDay Cards Ltd. (NewDay) and Amazon in January 2023 and the migration of certain Amazon accounts onto the Pulse branded card since October 2022.

DBRS Morningstar observed a gradual decline in the number of accounts, receivables balance and MPPRs, particularly in the ex-Amazon Platinum accounts after the migration onto Pulse. Accordingly, the percentage of historically better performing ex-Amazon Platinum accounts is decreasing, exacerbating the portfolio performance deterioration. In DBRS Morningstar’s view, the noticeably lower MPPRs and marginally worsening charge-off rates could negatively affect the ratings of the notes listed above, in spite of an improving portfolio yield as a result of the repricing activities by NewDay following the increases in the Bank of England base rate since mid-2022.

In addition, for the VFN-P1 related notes, the liquidity support from the series-specific reserve available to cover shortfalls in senior expenses and interest payments when applicable is diminishing due to the rising interest rates. This creates more downward pressure on the ratings of these notes.

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 analysed the transaction structure in Intex Deal Maker.

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” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

Other methodologies referenced in this transaction are listed at the end of this press release.

DBRS Morningstar is undertaking a review and will remove the ratings from this status as soon as it is appropriate.

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 continues to consider 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 the following data provided by the arranger, NewDay, or monthly servicer reports:
-- Total managed portfolio: monthly historical dynamic data from January 2007 to April 2023 in respect of the receivables balances, monthly payment rates, gross charge-offs, yield, delinquencies, and purchase rates.
-- The monthly receivables balance and accounts of the securitised portfolio composition of Foundation partners and Amazon (Platinum and Classic) migration to Pulse from November 2020 to April 2023.
-- Stratification tables related to the securitised portfolio as of 30 April 2023.

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 2020-1 Plc, DBRS Morningstar was supplied with a third-party assessment. DBRS Morningstar was not supplied with third-party assessments for NewDay Partnership Loan Notes VFN-P1-related subseries. 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 Loan Note Issuer VFN-P1 V1, NewDay Partnership Loan Note Issuer VFN-P1 V2, NewDay Partnership Loan Note Issuer VFN-P1 V3, and NewDay Partnership Funding 2020-1 Plc took place on 8 June 2022, when DBRS Morningstar confirmed its ratings on all classes of notes.

The lead analyst responsibilities for these transactions have been transferred to Jeffrey Cespon.

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

These ratings are Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. As such, sensitivity analysis is not applicable.

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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Jeffrey Cespon, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Dates:
24 September 2020: NewDay Partnership Funding 2020-1 Plc
15 December 2017: NewDay Partnership Loan Note Issuer VFN-P1 V1 and NewDay Partnership Loan Note Issuer VFN-P1 V2
16 August 2021: NewDay Partnership 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.

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].

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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