Morningstar DBRS Finalises Provisional Credit Ratings on NewDay Funding Master Issuer plc, Series 2024-3

DBRS Ratings Limited (Morningstar DBRS) finalised provisional credit ratings on the following classes of notes (collectively, the Notes) issued by NewDay Funding Master Issuer plc (the Issuer):

-- Series 2024-3, Class A Notes at AAA (sf)
-- Series 2024-3, Class B Notes at AA (sf)
-- Series 2024-3, Class C Notes at A (sf)
-- Series 2024-3, Class D Notes at BBB (sf)
-- Series 2024-3, Class E Notes at BB (sf)
-- Series 2024-3, Class F Notes at B (high) (sf)

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

The transaction is a securitisation of near-prime credit cards granted to individuals domiciled in the UK by NewDay Ltd. (NewDay) and are issued out of the Issuer as part of the NewDay Funding-related master issuance structure under the same requirements regarding servicing, amortisation events, priority of distributions, and eligible investments. NewDay Cards Ltd. (NewDay Cards) is the initial servicer with Lenvi Servicing Limited in place as the backup servicer for the transaction.

CREDIT RATING RATIONALE
The credit ratings of the Notes are based on the following analytical considerations:
-- The transaction's 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 Notes are issued.
-- The credit quality of NewDay's portfolio, the characteristics of the collateral, its historical performance and Morningstar DBRS expectation of charge-offs, monthly principal payment rates (MPPRs), and yield rates under various stress scenarios.
-- Morningstar DBRS operational risk review of NewDay and NewDay Cards' capabilities regarding origination, underwriting, servicing, position in the market and financial strength.
-- The transaction parties' financial strength regarding their respective roles.
-- The consistency of the transaction's structure with Morningstar DBRS' methodology "Legal Criteria for European Structured Finance Transactions".
-- Morningstar DBRS long-term sovereign credit rating on United Kingdom of Great Britain and Northern Ireland, currently at AA with a Stable trend.

TRANSACTION STRUCTURE

The transaction includes a scheduled revolving period. During this period, additional receivables may be purchased and transferred to the securitised pool, provided that the eligibility criteria set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer termination. On the other hand, the servicer may extend the scheduled revolving period by up to 12 months. If the Notes are not fully redeemed at the end of the scheduled revolving period, the transaction will enter into a rapid amortisation.

The transaction also includes a series-specific liquidity reserve to cover shortfalls in senior expenses, senior swap payments (if applicable) and interest on the Class A, Class B, Class C and Class D Notes (collectively, Senior Classes) and would amortise to the target amount of 2.5% of Senior Classes' outstanding balance, subject to a floor of GBP 250,000.

As the Notes are denominated in GBP with floating-rate coupons based on the daily compounded Sterling Overnight Index Average (Sonia), there is an interest rate mismatch between the fixed-rate collateral and the Sonia-based coupon rates. The potential risk is to a certain degree mitigated by excess spread and NewDay's ability to increase the credit card annual percentage rates.

COUNTERPARTY
HSBC Bank plc is the account bank for the transaction. Based on Morningstar DBRS private credit ratings on HSBC Bank plc 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 ASSUMPTIONS
The most recent total payment rate including the interest collections of the eligible portfolio was 14.7% based on the October 2024 investor report and continued to remain above historical levels. While the recent levels do not appear to be susceptible to the current inflationary pressures and interest rates, Morningstar DBRS elected to maintain the expected MPPR at 8% after removing the interest collections.

The most recent total portfolio yield of the eligible portfolio from the October 2024 investor report was 33.3%, up from the record low of 26% in May 2020 as a result of the consistent repricing of credit card rates by NewDay following the Bank of England base rate increases since mid-2022. After consideration of the observed trends and the removal of spend-related fees, Morningstar DBRS also maintained the expected yield at 27%.

Furthermore, the October 2024 investor report annualised charge-off rate of the eligible portfolio was 13.6% after reaching a record high of 17.6% in April 2020. Based on the analysis of historical charge-off rates, delinquencies and consideration of the current inflationary environment, Morningstar DBRS also maintained the expected charge-off rate at 18%.

Morningstar DBRS' credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the Notes are the related Interest Payment Amounts and the Class Balances.

Morningstar DBRS' credit rating on the Notes also addresses the credit risk associated with the increased rate of interest applicable to the Notes if the Notes are not redeemed on the Optional Redemption Date (as defined in and) in accordance with the applicable transaction documents.

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

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 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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Morningstar DBRS analysed the transaction structure in Intex Dealmaker.

Notes:
All figures are in Pound Sterling unless otherwise noted.

The principal methodology applicable to the credit ratings is Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024) https://dbrs.morningstar.com/research/439583.

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 cashflow 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 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 the following data provided by the arranger, NewDay Cards, and monthly servicer reports:
-- Total eligible portfolio: monthly receivables balances, total payment rates, gross yield, charge-off rates, and purchase rates from September 2023 to July 2024 and static annual vintage data from 2008 to 2023, in respect of receivables balances, payment rates, gross charge-offs, gross yield;
-- Total managed near-prime portfolio: monthly historical dynamic data from June 2007 to August 2023, including monthly receivables balances, total payment rates, gross yield, charge-off rates, and purchase rates and recoveries; and
-- Stratification tables in relation to the total eligible portfolio as of 31 July 2024.

Morningstar DBRS also received additional data with regard to dilutions from January 2010 to August 2023 and from September 2023 to July 2024 for the entire near-prime portfolio and the eligible portfolio, respectively.

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

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.

These credit ratings concern newly issued financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

This is the first credit rating action since the Initial Rating Date.

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:

-- Expected MPPR of 8%
-- Expected yield of 27%
-- Expected charge-off rate of 18%

Scenario 1: a 25% decrease in the expected MPPR
Scenario 2: a 25% decrease in the expected yield
Scenario 3: a 25% increase in the expected charge-off rate
Scenario 4: a 15% decrease in the expected MPPR, a 15% decrease in the expected yield, and a 15% increase in the expected charge-off rate

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

-- Class A: AA (low) (sf), AA (high) (sf), AA (sf), A (high) (sf)
-- Class B: A (sf), AA (low) (sf), A (high) (sf), A (low) (sf)
-- Class C: BBB (high) (sf), BBB (high) (sf), BBB (high) (sf), BBB (sf)
-- Class D: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf)
-- Class E: B (high) (sf), B (high) (sf), B (high) (sf), B (sf)
-- Class F: B (sf), B (low) (sf), B (sf), B (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.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Jeffrey Cespon, Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 15 October 2024

DBRS Ratings Limited
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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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (18 September 2024),
https://dbrs.morningstar.com/research/439581
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://dbrs.morningstar.com/research/435165
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://dbrs.morningstar.com/research/439571
-- 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/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.