Morningstar DBRS Confirms Credit Ratings on BFS Funding I Limited

DBRS Ratings Limited (Morningstar DBRS) confirmed its AA (sf) credit ratings on the Euro Variable Funding Note, the Sterling Variable Funding Note, and the U.S. Dollar Variable Funding Note (together, the VFNs) issued by BFS Funding I Limited (the Issuer).

The transaction is a securitisation collateralised by a portfolio of trade receivables granted by Bibby Financial Services Limited's (BFS) subsidiaries. Bibby Invoice Finance UK Limited (BIF UK) acts as the master servicer and the master seller of the trade receivables portfolio.

The Issuer acquired the trade receivables through the issuance of VFNs in British pound sterling, euros, and U.S. dollars (together, the approved currencies) purchased directly by Bayerische Landesbank or Barclays Bank PLC (Barclays), or indirectly by HSBC Bank plc and Lloyds Bank plc via their conduits in Regency Assets DAC and Gresham Receivables (No. 37) UK Limited, respectively.

The aggregate funding commitment is equal to an equivalent of GBP 750 million.

Subordinated loans in the approved currencies provided by BIF UK and proceeds from the Mezzanine B and Mezzanine C Notes in British pound sterling help to finance the purchase of the portfolio.

The transaction originally closed in October 2015 and has been in its revolving period since. The transaction is currently in its revolving period ending on 27 October 2025, provided that no amortisation event or Issuer event of default occurs. The legal final maturity date is one year after the end of the revolving period (i.e., on 27 October 2026 at the latest).

The confirmations are based on the following analytical considerations:
-- Portfolio performance of the transaction, in terms of delinquencies, defaults, dilutions, and days sales outstanding, as of 31 July 2024;
-- Current sizing of the reserves sufficient to withstand stresses at the AA (sf) credit rating level;
-- No early amortisation events.

PORTFOLIO PERFORMANCE
As of 31 July 2024, the gross receivables balance was equivalent to GBP 994.4 million and the three-month average delinquency ratio, default ratio, dilution ratio, and days sales outstanding were 8.5%, 2.1%, 3.1%, and 43.1 days, respectively, below their respective trigger levels of 18.5%, 3.5%, 6.0%, and 70.0 days, respectively.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS evaluates the adequacy of available credit enhancement through compliance with transaction definitions of the loss reserve, the dilution reserve, and the carrying cost reserve as well as the level of factors incorporated in these definitions. The loss and dilution stress factors expected at the AA (sf) credit rating level are 2.25.

CREDIT ENHANCEMENT
Credit enhancement is provided by the subordination of the Mezzanine B and Mezzanine C Notes, the subordinated loan, and overcollateralisation in the form of various reserves. Morningstar DBRS' calculation takes into account the portfolio's gross receivables balance as well as the available cash held in the Issuer's accounts. As of 31 September 2024, the credit enhancement to the VFNs was 58.20% and the required reserve percentage was 38.2%.

Barclays acts as the account bank for the transaction. Based on the account bank reference credit rating of A (high) on Barclays (which is one notch below its Morningstar DBRS public Long Term Critical Obligations Rating of AA (low)), 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 ratings assigned to the VFNs, as described in Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' 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, AND 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781.

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" (6 August 2024) https://dbrs.morningstar.com/research/437540.

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.

Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the eligibility criteria and maximum potential borrowing 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 Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include monthly reports, a foreign exchange model, and a credit enhancement model provided by BIF UK.

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

At the time of the initial credit ratings, Morningstar DBRS was not supplied with third-party assessments. 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 credit rating action on this transaction took place on 27 October 2023, when Morningstar DBRS confirmed its credit ratings on all VFNs at AA (sf).

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://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 loss stress factor and a dilution stress factor commensurate with the credit rating level as per the standards described in its "Rating European Trade Receivables Securitisation Transactions" methodology. Changes in the transaction documents with respect to the loss stress factor and the dilution stress factor can have a direct impact on the credit ratings on the VFNs.
-- The loss and dilution stress factors expected at the AA (sf) rating level are 2.25.

VFNs Risk Sensitivity:
-- A decrease of the loss stress factor and the dilution stress factor to 2.00 from 2.25, expected credit rating of A (sf)
-- A decrease of the loss stress factor and the dilution stress factor to 1.75 from 2.25, expected credit rating of BBB (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: Natalia Coman, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Associate Managing Director
Initial Rating Date: 23 October 2015

DBRS Ratings Limited
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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.

--Master European Structured Finance Surveillance Methodology (6 August 2024),
https://dbrs.morningstar.com/research/437540.
--Rating European Trade Receivables Securitisation Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435292.
--Interest Rate Stresses for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435278.
--Currency Stresses for Global Structured Finance Transactions (30 January 2024),
https://dbrs.morningstar.com/research/427281.
--Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165.
--Operational Risk Assessment for European Structured Finance Servicers (6 August 2024)
https://dbrs.morningstar.com/research/437543
--Operational Risk Assessment for European Structured Finance Originators (6 August 2024)
https://dbrs.morningstar.com/research/437541
--Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024),
https://dbrs.morningstar.com/research/437781.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.