Morningstar DBRS Finalises Provisional Credit Rating on Pulse UK 2024 plc

DBRS Ratings Limited (Morningstar DBRS) finalised its provisional credit rating of AAA (sf) on the Class A Notes issued by Pulse UK 2024 plc (the Issuer).

Morningstar DBRS did not assign a credit rating to the Class B Notes (together with the Class A Notes, the Notes) also
issued in this transaction.

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

The transaction represents the issuance of Notes backed by lease receivables related to auto lease agreements granted by Arval UK Limited (Arval; the seller and servicer) to private and commercial lessees in England, Wales, and Scotland. The residual value (RV) component of the leases is not securitised. All underlying vehicles are classified as new upon origination. Arval is a wholly owned, indirect subsidiary of BNP Paribas SA (BNPP). The lease receivables are serviced by Arval.

CREDIT RATING RATIONALE
Morningstar DBRS' credit rating is 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 Class A Notes have been issued;
-- The credit quality of Arval's portfolio, the characteristics of the collateral, its historical performance, and Morningstar DBRS projected behaviour under various stress scenarios;
-- Arval's capabilities with respect to originations, underwriting, servicing, and its position in the market and financial strength;
-- The operational risk review of Arval, which Morningstar DBRS deems an acceptable servicer;
-- The transaction parties' financial strength with regard to their respective roles;
-- The consistency of the transaction's legal structure with Morningstar DBRS' "Legal Criteria for European Structured Finance Transactions" methodology;
-- The consistency of the transaction's hedging structure with Morningstar DBRS' "Derivative Criteria for European Structured Finance Transactions" methodology;
-- The sovereign rating on the United Kingdom of Great Britain and Northern Ireland, currently at AA with a Stable trend by Morningstar DBRS.

TRANSACTION STRUCTURE
The transaction includes a 12-month revolving period, during which the Issuer has the option to purchase new receivables subject to certain conditions and limitations. The revolving period will prematurely end upon the occurrence of certain triggers. The transaction incorporates a single waterfall that outlines the allocation of the available distribution amount consisting of, inter alia, collections representing interest, principal, and recoveries.

The transaction benefits from a liquidity reserve, with an initial balance of GBP 5,250,000 million (equal to 1.5% of the aggregate outstanding principal amount of the Class A Notes at closing). The target balance of the reserve on subsequent payment dates is the higher of (1) EUR 500,000 and (2) 1.5% of the aggregate outstanding principal amount of the Class A Notes on the immediately preceding calculation date. The reserve is available to cover the payment of senior expenses, swap payments, and interest on the Class A Notes only.

All underlying contracts are fixed rate while the Class A Notes pay a floating rate. The Class A Notes are indexed to compounded daily SONIA. Interest rate risk for the Class A Notes is mitigated through an interest rate swap.

COUNTERPARTIES
The BNP Paribas, London branch (BNPP-LB) has been appointed as the account bank for the transaction. Morningstar DBRS privately rates BNPP-LB and concluded that BNPP-LB meets the minimum criteria to act in this capacity. The transaction documents contain downgrade provisions relating to the account bank consistent with Morningstar DBRS' criteria.

BNPP has been appointed as the swap counterparty for the transaction. Morningstar DBRS' public Long Term Critical Obligations Rating on BNP is AA (high) with a Stable trend, which meets the criteria to act in such capacity. The hedging documents contain downgrade provisions consistent with Morningstar DBRS' criteria.

Morningstar DBRS' credit rating on Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Class A Notes amortisation amounts and the Class A Notes interest amounts.

Morningstar DBRS' credit rating does not address nonpayment 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 https://dbrs.morningstar.com/research/437781.

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 rating 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 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 replenishment criteria set forth in the transaction legal documents.

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 this credit rating include the seller and its agents. Morningstar DBRS received the following set of data:
-- Quarterly static gross default data from Q1 2018 to Q2 2024, total and split into nonregulated business (limited companies and limited liability partnership), regulated business (sole trader), and regulated individual subsets;
-- Quarterly static recovery data from Q1 2018 to Q2 2024, total and split into nonregulated business (limited companies and limited liability partnership), regulated business (sole trader), and regulated individual subsets;
-- Monthly dynamic delinquency and early settlement data and portfolio outstanding data from January 2018 to April 2024;
-- Monthly early redemption data from January 2018 to March 2024;
-- Portfolio lease-by-lease data and the related stratification tables as at 31 October 2024; and
-- A theoretical amortisation of the selected pool.

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

Morningstar DBRS was 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 this credit rating 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.

This credit rating concerns a newly issued financial instrument. This is the first Morningstar DBRS credit rating on this financial instrument.

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 (the base case):

-- Expected default rate: 3.7%
-- Expected recovery rate: 70.0%
-- Loss given default (LGD): 58.0% for the AAA (sf) scenario.

Scenario 1: 25% increase in LGD.
Scenario 2: 50% increase in LGD.
Scenario 3: 25% increase in probability of default (PD).
Scenario 4: 50% increase in PD.
Scenario 5: 25% increase in PD and 25% increase in LGD.
Scenario 6: 25% increase in PD and 50% increase in LGD.
Scenario 7: 50% increase in PD and 25% increase in LGD.
Scenario 8: 50% increase in PD and 50% increase in LGD.

DBRS Morningstar concludes that the credit ratings under the eight stress scenarios would be:
-- Class A Notes: AAA (sf), AA (high) (sf), AAA (sf), AA (high) (sf), AA (high) (sf), AA (low) (sf), AA (low) (sf), A (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.

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

Lead Analyst: Miklos Halasz, Vice President,
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 26 November 2024

DBRS Ratings Limited
1 Oliver's Yard 55-71 City Road 2nd Floor,
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 Structured Finance Transactions Methodology (19 Noember 2024),
https://www.dbrsmorningstar.com/research/439581
-- Legal Criteria for European Structured Finance Transactions (28 June 2024),
https://www.dbrsmorningstar.com/research/435165
-- Operational Risk Assessment for European Structured Finance Originators and Servicers (18 September 2024),
https://www.dbrsmorningstar.com/research/439571
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://www.dbrsmorningstar.com/research/439913
-- Derivative Criteria for European Structured Finance Transactions (6 September 2024), https://www.dbrsmorningstar.com/research/439043
-- Rating CLOs Backed by Loans to European SMEs (18 September 2024) and Morningstar DBRS SME Diversity Model (v.2.7.1.4),
https://www.dbrsmorningstar.com/research/439574
-- 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/437781.

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