Morningstar DBRS Confirms Credit Ratings on PCL Funding I Limited, PCL Funding VI PLC, and PCL Funding VIII PLC

DBRS Ratings Limited (Morningstar DBRS) confirmed the credit ratings on the notes issued by three PCL Funding issuers as follows:

PCL Funding I Limited
-- Class A Senior ETNs of Series 2012 Senior VFN confirmed at AAA (sf)

PCL Funding VI PLC
-- Series 2022-1 Class A Notes confirmed at AAA (sf)
-- Series 2022-1 Class B Notes confirmed at A (high) (sf)
-- Series 2022-1 Class C Notes confirmed at A (low) (sf)

PCL Funding VIII PLC
-- Series 2023-1 Class A Notes confirmed at AAA (sf)
-- Series 2023-1 Class B Notes confirmed at A (high) (sf)
-- Series 2023-1 Class C Notes confirmed at A (low) (sf)

The credit ratings address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

All the notes above are backed by a portfolio of financing advances made by Premium Credit Limited (PCL, the originator) to companies and individuals domiciled in the United Kingdom of Great Britain and Northern Ireland (UK) and the Republic of Ireland (Ireland) for non-life insurance premia and other payment plans. PCL is also the servicer with Link Financial Outsourcing Limited as the backup servicer.

The rating confirmation reflects the largely stable collateral portfolio compositions over the past decade compared with the theoretically worst limits and is based on the following analytical considerations:
-- The transactions’ capital structures, including the form and sufficiency of available credit enhancement to support Morningstar DBRS’ projected expected net losses under various stress scenarios.
-- The ability of the transactions to withstand stressed cash flow assumptions and repay the notes.
-- The originator’s capabilities with respect to origination, underwriting, and servicing.
-- An operational risk review of the originator, which Morningstar DBRS deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality, the diversification of the collateral, and the historical and projected performance of the originator’s portfolio.
-- Morningstar DBRS’ sovereign credit ratings of the UK at AA with a Stable trend and Ireland at AA (low) with a Stable trend.
-- The consistency of the transactions’ legal structure with the Morningstar DBRS “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE
The notes of PCL Funding I, PCL Funding VI, and PCL Funding VIII are issued as part of the PCL-related master issuance structure, where all outstanding series of notes are supported by the same pool of receivables and are generally issued under similar conditions regarding servicing, amortisation events, priority of distributions, and concentration limits.

More information on PCL Funding I, PCL Funding VI, and PCL Funding VIII can be found at: https://www.dbrsmorningstar.com/issuers/18769, https://dbrs.morningstar.com/issuers/28689, and https://dbrs.morningstar.com/issuers/29361, respectively.

COUNTERPARTIES
HSBC Bank plc (HSBC Bank) is the account bank for the above transactions. Based on Morningstar DBRS’ private credit rating on HSBC Bank and the downgrade provisions outlined in the transaction documents, Morningstar DBRS considers the risk arising from the exposure to the account bank to be commensurate with the credit ratings assigned.

PORTFOLIO PERFORMANCE and ASSUMPTIONS
As of 23 February 2024, the 13-week average delinquency and default ratios were 1.2% and 0.7%, respectively, substantially below the respective performance trigger levels of 3.75% and 2.25%. On the other hand, the 13-week average payment rate ratio was 4.7%, above the trigger level of 3.5%.

Morningstar DBRS derived asset assumptions by product segment that have remained largely stable over the past decade with little signs of adverse effects from the current inflationary pressures and interest rate increases. In addition, the portfolio product segment compositions have remained largely stable over the past decade in comparison with the theoretically worst limits.

Environmental, Social, and Governance Considerations
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at: https://dbrs.morningstar.com/research/427030.

Morningstar DBRS 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 Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024); https://dbrs.morningstar.com/research/426219.

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

Morningstar DBRS 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 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://dbrs.morningstar.com/research/421590.

The sources of data and information used for this credit rating include updated performance and portfolio data relating to the receivables provided by the originator through Lloyds Bank Corporate Markets plc in respect of vintage default, recovery, and net losses information split by product type and jurisdiction from 2007 to 2024 and stratification tables in relation to the collateral pool as of 29 February 2024.

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

At the time of the initial credit rating, Morningstar DBRS was not supplied with third-party assessments for PCL Funding I, PCL Funding VI, or PCL Funding VIII. However, this did not affect the credit rating analysis.

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

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

The last rating action on PCL Funding I and PCL Funding VI took place on 14 April 2023, when Morningstar DBRS confirmed and upgraded its credit ratings on the notes. The last rating action on PCL Funding VIII took place on 12 May 2023, when Morningstar DBRS finalised its credit ratings on the notes.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings:

PCL Funding I
-- The expected probability of default (PD): 7.2%
-- The expected loss given default (LGD): 25.9%

PCL Funding VI
-- The expected PD: 7.2%
-- The expected LGD: 26.4%

PCL Funding VIII
-- The expected PD: 7.3%
-- The expected LGD: 26.4%

-- Scenario 1: A 25% increase in expected PD
-- Scenario 2: A 50% increase in expected PD
-- Scenario 3: A 25% increase in expected LGD
-- Scenario 4: A 25% increase in expected PD and 25% increase in expected LGD
-- Scenario 5: A 50% increase in expected PD and 25% increase in expected LGD
-- Scenario 6: A 50% increase in expected LGD
-- Scenario 7: A 25% increase in expected PD and 50% increase in expected LGD
-- Scenario 8: A 50% increase in expected PD and 50% increase in expected LGD

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios are:

PCL Funding I
-- Class A Senior ETNs of Series 2012 Senior VFN: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), A (high) (sf), AA (high) (sf), A (high) (sf), A (high) (sf)

PCL Funding VI
-- Series 2022-1 Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), A (high) (sf), AA (high) (sf), A (high) (sf), A (high) (sf)
-- Series 2022-1 Class B Notes: A (high) (sf), A (low) (sf), A (high) (sf), BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf)
-- Series 2022-1 Class C Notes: A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BBB (low) (sf), BBB (high) (sf), BBB (low) (sf), BB (high) (sf)

PCL Funding VIII
-- Series 2023-1 Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (low) (sf), AA (high) (sf), AA (low) (sf), A (high) (sf)
-- Series 2023-1 Class B Notes: A (high) (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf), A (sf), BBB (high) (sf), BBB (sf)
-- Series 2023-1 Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (high) (sf), BB (high) (sf)

For further information on Morningstar DBRS 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 Morningstar DBRS 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 Credit Rating Dates:
PCL Funding I: 31 October 2012 (Restructured on 2 February 2017)
PCL Funding VI: 24 June 2022
PCL Funding VIII: 14 April 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://dbrs.morningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024); https://dbrs.morningstar.com/research/426219.
-- Rating European Structured Finance Transactions Methodology (11 December 2023); https://dbrs.morningstar.com/research/425149.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023); https://dbrs.morningstar.com/research/416730.
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024); https://dbrs.morningstar.com/research/429054.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023); https://dbrs.morningstar.com/research/420572.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023); https://dbrs.morningstar.com/research/420602.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024); https://dbrs.morningstar.com/research/427030.
-- Global Methodology for Rating CLOs and Corporate CDOs (23 February 2024) and Morningstar DBRS CLO Asset model (version 1.0.1.0); https://dbrs.morningstar.com/research/428544.
-- Rating CLOs Backed By Loans to European SMEs (23 February 2024) and Morningstar DBRS SME Diversity Model (version 2.6.1.4); https://dbrs.morningstar.com/research/428543.
-- Currency Stresses for Global Structured Finance Transactions (30 January 2024); https://dbrs.morningstar.com/research/427281.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].