DBRS Morningstar Finalises Provisional Credit Ratings on Performer Funding 1 PLC

DBRS Ratings Limited (DBRS Morningstar) finalised its provisional credit ratings on the notes (collectively, the Rated Notes) issued by Performer Funding 1 PLC (the Issuer) 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 (sf)
-- Class E Notes at BB (high) (sf)
-- Class F Notes at B (sf)
-- Class X Notes at BB (low) (sf)

DBRS Morningstar did not assign a credit rating to the Class R or Class Z Notes (together with the Rated Notes, the Notes) also issued in the transaction.

The credit ratings of the Class A and Class B Notes address the timely payment of scheduled interest and ultimate repayment of principal by the legal final maturity date. The credit ratings of the Class C, Class D, Class E, and Class F Notes address the ultimate payment of scheduled interest while the class is subordinate and the timely payment of scheduled interest as the most senior class as well as the ultimate repayment of principal by the legal final maturity date. The credit rating of the Class X Notes addresses the ultimate payment of interest and ultimate repayment of principal by the legal final maturity date.

The transaction constitutes the issuance of Notes backed by a portfolio of GBP fixed-rate receivables related to unsecured consumer loans granted by Lloyds Bank plc (Lloyds) to private individuals residing in England and Wales. Lloyds also services the collateral portfolio and Intertrust Management Limited acts as the backup servicer facilitator.

DBRS Morningstar’s credit ratings are based on the following analytical considerations:
-- The transaction’s capital structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Rated Notes are issued.
-- The credit quality and the characteristics of the collateral, its historical performance, and DBRS Morningstar’s projection under various stress scenarios.
-- Lloyds’s capabilities with respect to originations, underwriting, servicing, and its financial strength.
-- The operational risk review of Lloyds, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The sovereign credit rating on the United Kingdom of Great Britain and Northern Ireland (UK), currently rated AA with a Stable trend by DBRS Morningstar.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s "Legal Criteria for European Structured Finance Transactions" methodology.

TRANSACTION STRUCTURE
The transaction is static and the repayment of the Notes will be on a fully sequential basis, except for the Class X Notes which would be repaid in the interest waterfalls until a post-enforcement event occurs. The transaction allocates payments in separate interest and principal priorities and benefits from both a liquidity reserve and general reserve. The liquidity reserve has a target balance equal to 2% of the outstanding amount of the Class A and Class B Notes, and the balance can be used to cover shortfalls in senior expenses, senior swap payments, and interest on the Class A and Class B Notes when interest collections are not sufficient. Principal funds can also be reallocated to cover the above shortfalls if the interest collections and the liquidity reserve are insufficient. The general reserve, on the other hand, has a target balance of zero while the Class B Notes remain outstanding and 0.2% of the initial collateral balance after the full repayment of the Class B Notes until the full repayment of the Class F Notes. The general reserve is available to cover senior expenses, senior swap payments, and interest and principal deficiency ledger debit of the Class C, Class D, Class E, and Class F Notes.

TRANSACTION COUNTERPARTIES
Lloyds is the account bank for the transaction. DBRS Morningstar currently has a Long-Term Issuer Rating of AA (low) with a Stable trend on Lloyds. Based on 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 assigned credit ratings, as described in DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

Lloyds Bank Corporate Markets plc (LBCM) is the interest rate swap counterparty for the transaction. DBRS Morningstar has a private credit rating on LBCM, which meets its criteria to act in such capacity. The transaction documents contain downgrade provisions largely consistent with DBRS Morningstar’s criteria and the transaction will be monitored based on DBRS Morningstar’s credit rating of LBCM or its replacement.

The transaction is exposed to the Lloyds Banking Group (LBG) as a dominant counterparty with Lloyds acting as the Issuer account bank, collection account bank, and servicer as well as LBCM as the swap counterparty. While LBG is considered a dominant counterparty for the transaction, DBRS Morningstar considers the related risk to be mitigated as the rating thresholds for the account bank and swap counterparty are set at 'A'.

DBRS Morningstar’s credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the Rated Notes are the related Interest Payment Amounts and the Class Balances.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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” (4 July 2023) 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 rating is: 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.

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.

An asset and a cash flow analysis were both conducted.

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/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.

The sources of data and information used for these credit ratings include performance and portfolio data relating to the receivables provided by Lloyds through the arranger, Morgan Stanley & Co. International plc.

DBRS Morningstar received the following information:
-- Monthly static gross defaults from January 2007 to May 2023.
-- Monthly static recoveries from January 2000 to June 2017.
-- Monthly dynamic recoveries from April 2019 to June 2022.
-- Monthly originations, gross defaults, billed interest and repayments from June 2005 to April 2023.
-- Monthly dynamic prepayments from February 2018 to May 2023.
-- Loan-level data, stratification tables and contractual amortisation profile in relation to the provisional securitised portfolio as of 31 October 2023.

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

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.

These credit ratings concern newly issued financial instruments. These are the first DBRS Morningstar credit rating actions on these financial instruments since the Initial Rating Date.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings:

-- Expected default of 5%: a 25% and 50% increase on the applicable expected default.
-- Expected recovery rate of 15% or loss given default (LGD) of 85%: a 25% increase on the applicable LGD.

Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and a 25% increase on the expected LGD.
Scenario 5: A 50% increase in the expected default and a 25% increase on the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and a 50% increase on the expected LGD.
Scenario 8: A 50% increase in the expected default and a 50% increase on the expected LGD.

DBRS Morningstar concludes that the expected credit ratings under the eight stress scenarios are:
-- Class A Notes: AA (sf), AA (sf), AAA (sf), AA (sf), AA (low) (sf), AAA (sf), AA (sf), AA (low) (sf).
-- Class B Notes: A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf), AA (sf), A (high) (sf), A (low) (sf).
-- Class C Notes: BBB (high) (sf), BBB (low) (sf), A (low) (sf), BBB (sf), BBB (low) (sf), A (low) (sf), BBB (sf), BBB (low) (sf).
-- Class D Notes: BB (high) (sf), BB (low) (sf), BBB (sf), BB (sf), B (high) (sf), BBB (sf), BB (sf), B (high) (sf)
-- Class E Notes: BB (low) (sf), B (low) (sf), BB (high) (sf), B (high) (sf), below B (low) (sf), BB (high) (sf), B (high) (sf), below B (low) (sf).
-- Class F Notes: below B (low) (sf), below B (low) (sf), B (low) (sf), below B (low) (sf), below B (low) (sf) , B (low) (sf), below B (low) (sf), below B (low) (sf).

No sensitivity analysis was conducted on the Class X Notes.

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: Jeffrey Cespon, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 11 December 2023

DBRS Ratings Limited
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London EC1Y 1HQ United Kingdom
Tel. +44 (0) 20 7855 6600
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.

-- 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 (11 December 2023), https://www.dbrsmorningstar.com/research/425149/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structuredfinancetransactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023), https://www.dbrsmorningstar.com/research/420573/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023), https://www.dbrsmorningstar.com/research/420572/operational-risk-assessment-for-europeanstructured-finance-servicers.
-- 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.dbrsmorningstarMS -