Morningstar DBRS Confirms Credit Rating on Globaldrive Auto Receivables UK 2020-A plc Following Amendment

DBRS Ratings Limited (Morningstar DBRS) confirmed its A (sf) credit rating on the Class A Notes issued by Globaldrive Auto Receivables UK 2020-A plc (the Issuer).

The credit rating on the Class A Notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The transaction is a securitisation of auto loans granted to private and commercial borrowers in the United Kingdom for the purchase of new and used cars and light-commercial vehicles. FCE Bank plc (FCE) is the originator, servicer, and seller. The transaction is subject to residual value (RV) risk through the presence of personal contract purchase (PCP) agreements.

The credit rating confirmation is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the May 2024 payment date;
-- Probability of default (PD), loss given default (LGD), and RV haircut assumptions on a potential portfolio migration based on the past performance analysis;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the A (sf) credit rating level;
-- No revolving early termination events; and
-- An amendment to the transaction effective on 20 June 2024.

AMENDMENT
The amendment to the transaction involves the following:
-- An extension of the revolving period to the payment date in June 2025 from June 2024.
-- An extension of the legal final maturity date to the payment date in June 2032 from June 2031.
-- The discount rate for additional receivables added after 31 May 2024 will increase to 7.0% from 3.9%.
-- An introduction of a Discount Rate Variation Option, which allows the Seller an option to vary the Discount Rate on any Interest Payment Date during the revolving period. The seller can only decrease the discount rate for additional receivables and the decrease is subject to consent from the majority shareholder. If an end of period balance shortfall occurs due to the new discount rate, the seller will offer to sell and assign additional receivables, funded through a non-interest bearing subordinated loan which is paid outside the priority of payments after the Class A Notes are repaid in full.
-- The Swap rate will increase to 1.932% from 1.682%.
-- The issuance of a non-interest-bearing subordinated loan of approximately GBP 14.1 million to the Issuer by FCE as seller, which will allow the Issuer to make the upfront payment of the same amount to the swap counterparty on the June 2024 payment date. The repayment of the subordinated loan to the seller is junior to the repayment of the Class A, Class B, and Class C notes in the principal priority of payments.

PORTFOLIO PERFORMANCE
As of the May 2024 payment date, the two- to three-month arrears ratio and the 90+-day delinquency ratio both remained low at 0.04%. Cumulative defaults represented 0.2% of the total purchased receivables since closing, and the RV represented 57.2% of the outstanding portfolio balance, up from 55.6% at the last annual review.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS updated its PD assumption at the B (low) (sf) rating level to 4.3% and maintained its LGD assumption at the B (low) (sf) rating level at 30.6%. Morningstar DBRS updated its RV haircut assumption to 25.7% at the A (sf) rating level, following a review of updated historical data and an update to the "Rating European Consumer and Commercial Asset-Backed Securitisations" methodology.

CREDIT ENHANCEMENT
The credit enhancement to the Class A Notes consists of the subordination of the junior notes. As of the May 2024 payment date, the credit enhancement to the Class A Notes was 17.0%, stable since the initial rating as the transaction is still in its revolving period.

The transaction benefits from a non-amortising reserve fund, which covers senior fees, swap payments, and interest on the Class A Notes and is also available to redeem the Class A Notes on the legal final maturity date. As of the May 2024 payment date, the liquidity reserve was funded to its target level of approximately GBP 17.5 million.

Elavon Financial Services DAC, U.K. Branch acts as the account bank for the transaction. Based on the Morningstar DBRS private rating of Elavon Financial Services DAC, U.K. Branch, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, Morningstar DBRS 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 Morningstar DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Banco Santander SA (Santander) acts as the swap counterparty for the transaction. Morningstar DBRS' Long Term Critical Obligations Rating of AA (low) on Santander is above the first rating threshold as described in Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

Morningstar DBRS's credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

Morningstar DBRS's long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 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-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Morningstar DBRS analysed the transaction structure in Intex DealMaker.

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

The principal methodologies applicable to the credit rating are the "Master European Structured Finance Surveillance Methodology" (7 March 2024): https://dbrs.morningstar.com/research/429051/master-european-structured-finance-surveillance-methodology, and "Rating European Consumer and Commercial Asset-Backed Securitisations" (8 January 2024), https://dbrs.morningstar.com/research/426219/rating-european-consumer-and-commercial-asset-backed-securitisations

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

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

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

Morningstar DBRS has conducted a review of the transaction legal documents provided in the context of the aforementioned amendment. The other transaction legal documents have remained unchanged since the most recent rating action and as such, a review has not been 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 Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/421590/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include loan-level data, investor reports, and the following historical data, all provided by FCE:
-- Static quarterly gross loss data from Q1 2019 to Q1 2024 for voluntary and involuntary terminations.
-- Static quarterly net loss data from Q1 2019 to Q1 2024 for voluntary and involuntary terminations.
-- Static quarterly recovery data from Q1 2019 to Q1 2024 for voluntary and involuntary terminations.
-- Dynamic monthly gross loss data from January 2019 to February 2024 for voluntary and involuntary terminations.
-- Dynamic monthly recovery data from January 2019 to February 2024 for voluntary and involuntary terminations.
-- Dynamic monthly delinquency data from January 2019 to February 2024.
-- Dynamic monthly vehicle handback data from January 2019 to February 2024 for PCP agreements.

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 supplied with third-party assessments. However, this did not impact the 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 credit rating action on this transaction took place on 20 June 2023, when Morningstar DBRS confirmed its A (sf) credit rating on the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Petter Wettestad.

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

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):
-- Morningstar DBRS expected a lifetime base case PD, LGD, and RV haircut for a hypothetical migration of the portfolio according to the past performance analysis. 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, LGD at the B (low) (sf) rating level are 4.3% and 30.6%, respectively. The RV haircut at the A (sf) level is 25.7%.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption.

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

This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Petter Wettestad, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 26 June 2020

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Master European Structured Finance Surveillance Methodology (7 March 2024),
https://dbrs.morningstar.com/research/429051/master-european-structured-finance-surveillance-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149/rating-european-structured-finance-transactions-methodology
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602/interest-rate-stresses-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572/operational-risk-assessment-for-european-structured-finance-servicers
-- Operational Risk Assessment for European Structured Finance Originators (7 March 2024),
https://dbrs.morningstar.com/research/429054/operational-risk-assessment-for-european-structured-finance-originators
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024),
https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

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 info-DBRS@morningstar.com.