DBRS Morningstar Confirms Credit Ratings on Auto ABS UK Loans plc

DBRS Ratings Limited (DBRS Morningstar) confirmed its AAA (sf) credit ratings on the Class A2a and Class A3a Notes (together, the Class A notes) issued by Auto ABS UK Loans plc.

The credit ratings on the Class A notes address the timely payment of interest and ultimate payment of principal on or before 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 October 2023 payment date;
-- Probability of default (PD), loss given default (LGD), residual value (RV) haircut, and expected loss assumptions on the receivables;
-- Current available credit enhancements to the Class A notes to cover the expected losses at the AAA (sf) rating level; and
-- No revolving period termination events have occurred.

The transaction is a securitisation of auto loans originated and serviced by Stellantis Financial Services UK Limited (Stellantis, previously PSA Finance UK Limited) and granted to private individuals or sole traders in England, Wales, Scotland, and Northern Ireland. The asset portfolio consists of personal contract purchase loans and conditional sale loans granted for the purchase of new and used vehicles. The transaction had a 24-month revolving period, which ended at the November 2022 payment date.

In April 2023, the servicer downgrade trigger events were amended to include, in addition to the servicer, the mention of BNP Paribas SA (BNP Paribas) in the context of the partnership between BNP Paribas and Stellantis, through BNP Paribas Personal Finance, entered at that time.

PORTFOLIO PERFORMANCE
As of the October 2023 payment date, loans two to three months in arrears and loans more than three months in arrears represented 0.1% and 0.0% of the outstanding portfolio balance, respectively, stable since the last annual review. The cumulative default ratio was 0.5% of the total receivables purchased since closing, up from 0.3% at the last annual review.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted an analysis of the remaining receivables and updated its assumptions as follows compared with the last annual review, when its analysis was based on a worst-case portfolio composition due to the transaction being in the revolving period:

-- Expected PD of 3.5%, down from 3.7%;
-- Expected recovery rate (RR) of 71.6%, down from 72.3%;
-- RV haircut of 44.5% at AAA (sf), unchanged.

CREDIT ENHANCEMENT
Credit enhancement to the Class A notes is provided by subordination of the junior notes. As of the October 2023 payment date, credit enhancement to the Class A notes was at 33.4%, up from 20.2% at the last annual review, as the transaction started to deleverage since the end of the revolving period in November 2022.

The transaction benefits from a general reserve fund, funded to its target level of GBP 15.6 million (1.7% of the aggregate balance on the Class A1b Notes, which DBRS Morningstar doesn’t rate, and the Class A notes), which covers senior fees and any interest shortfall on the Class A notes.

Santander UK PLC (Santander) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on Santander, 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 credit rating assigned to the Class A notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA, London Branch (Banco Santander), Lloyds Bank Corporate Markets plc (Lloyds), and Wells Fargo Securities International Limited (Wells Fargo) act as the swap counterparties for the transaction. DBRS Morningstar's private ratings of Banco Santander, Lloyds, and Wells Fargo are consistent with the first rating threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.

DBRS Morningstar’s credit ratings on the Class A notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784/ dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

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

The principal methodology applicable to the credit ratings is: “Master European Structured Finance Surveillance Methodology” (22 October 2023) https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology.

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

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

DBRS Morningstar has conducted a review of the amended transaction legal documents provided in the context of the aforementioned amendment. A review of the remaining transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for these credit ratings include monthly reports provided by BNP Paribas.

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

At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 25 November 2022, when DBRS Morningstar confirmed its AAA (sf) credit ratings on the Class A notes.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (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.

-- Expected PD at B (low) of 3.5%;
-- Expected RR at B (low) of 71.6%;
-- RV haircut of 44.5% at AAA.

-- The risk sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the PD and LGD increases by 50%, the rating of the Class A notes would be expected to fall to AA (high) (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), assuming no change in the PD or LGD. Furthermore, if the PD, LGD, and RV haircut all increase by 50%, the rating of the Class A notes would be expected to fall to AA (sf).

Class A notes Risk Sensitivity:
-- 25% increase in PD and LGD, expected rating of AAA (sf)
-- 50% increase in PD and LGD, expected rating of AA (high) (sf)
-- 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in PD, LGD, and RV haircut, expected rating of AAA (sf)
-- 25% increase in PD and LGD, and 50% increase in RV haircut, expected rating of AA (high) (sf)
-- 50% increase in PD and LGD, and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in PD, LGD, and RV haircut, expected rating of AA (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://registers.esma.europa.eu/cerep-publication. 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 credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Natalia Coman, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 27 November 2020

DBRS Ratings Limited
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Registered and incorporated under the laws of England and Wales: Company No. 7139960

The credit 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 (22 October 2023),
https://www.dbrsmorningstar.com/research/422281/master-european-structured-finance-surveillance-methodology
--Rating European Consumer and Commercial Asset-Backed Securitisations (22 October 2023),
https://www.dbrsmorningstar.com/research/422276/rating-european-consumer-and-commercial-asset-backed-securitisations
--Rating European Structured Finance Transactions Methodology (6 October 2023),
https://www.dbrsmorningstar.com/research/421599/rating-european-structured-finance-transactions-methodology
--Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://www.dbrsmorningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions
--Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://www.dbrsmorningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions
--Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions
--Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers
--DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023),
https://www.dbrsmorningstar.com/research/416784/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].