Morningstar DBRS Confirms Credit Ratings on NewDay Partnership Related Transactions

DBRS Ratings Limited (Morningstar DBRS) confirmed the credit ratings of the notes listed below (collectively, the Notes) issued by NewDay Partnership Master Issuer and NewDay Partnership Loan Note Issuer following its annual review of the Notes:

NewDay Partnership Master Issuer:
Series 2023-1
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
-- Class C Notes at A (high) (sf)
-- Class D Notes at BBB (high) (sf)

NewDay Partnership Loan Note Issuer:
VFN-P1
-- V1 Class A Loan Note at BBB (high) (sf)
-- V2 Class A Loan Note at AAA (sf)
-- V2 Class B Loan Note at AA (sf)
-- V2 Class C Loan Note at A (sf)
-- V2 Class E Loan Note at BB (high) (sf)

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

The Notes or each transaction is a securitisation of co-branded credit cards affiliated with high street and online retailers granted to individuals domiciled in the UK by NewDay Ltd. (NewDay or the originator) and are issued out of NewDay Partnership Master Issuer or NewDay Partnership Loan Note Issuer as part of the NewDay Partnership master issuance structure under the same requirements regarding servicing, amortisation events and priority of distributions. NewDay Cards Ltd. (NewDay Cards) is the initial servicer with Lenvi Servicing Limited (Lenvi) in place as the backup servicer for each transaction.

CREDIT RATING RATIONALE
-- The transaction's capital structure, including the form and sufficiency of available credit enhancement to support Morningstar DBRS' expected yield, charge-off rate and monthly principal payment rate (MPPR) under various stress scenarios
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the notes
-- The originator's capabilities with respect to origination and underwriting
-- An operational risk review of NewDay Cards and Lenvi with respect to servicing
-- The transaction parties' financial strength regarding their respective roles
-- The credit quality, the diversification of the collateral, and the securitised portfolio's historical and projected performance
-- Morningstar DBRS' long-term sovereign rating on the United Kingdom of Great Britain and Northern Ireland at AA with a Stable trend
-- The consistency of the transaction's legal structure with Morningstar DBRS' methodology "Legal and Derivative Criteria for European Structured Finance Transactions"

TRANSACTION STRUCTURE

Each transaction typically 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. The servicer may have the option to extend the scheduled revolving period by up to 12 months. If the notes are not fully redeemed at the end of their respective scheduled revolving periods, the individual transaction would enter into a rapid amortisation.

Each transaction includes a series-specific liquidity reserve that has been replenished to the target amount in the transaction's interest waterfalls. The liquidity reserve is available to cover the shortfalls in senior expenses, senior swap payments if applicable and interest due on the Class A, Class B, Class C and Class D Notes and would amortise to the target amount, subject to a floor of GBP 250,000.

As all GBP-denominated Notes carry 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 floating-rate Notes. The potential interest rate mismatch risk is to a certain degree mitigated by excess spread and the originator's ability to increase the credit card contractual rate and is considered in Morningstar DBRS' cashflow analysis.

COUNTERPARTIES

Citibank, N.A. London Branch remains as the account bank for each transaction. Based on Morningstar DBRS' private credit ratings on Citibank, N.A. London Branch and the downgrade provisions outlined in the transaction documents governing NewDay Partnership Master Issuer, Morningstar DBRS considers the risk arising from the exposure to the account bank to be commensurate with the credit ratings assigned to the notes issued by NewDay Partnership Master Issuer.

Nonetheless, as the transaction documents governing NewDay Partnership Loan Note Issuer do not include Morningstar DBRS' rating thresholds in respect of the account bank, permitted investments and servicer and sub-servicer accounts, there may be larger volatility for VFN P1-V1 and VFN P1-V2 credit ratings than the notes issued by NewDay Partnership Master Issuer when Morningstar DBRS' view of counterparty credit worthiness differs from the rating thresholds currently included in the documents.

PORTFOLIO ASSUMPTIONS

The most recent investor report for the month of December 2024 indicates a total payment rate of 38.9%, notably improved from 19.3% in June 2023 before the inclusion of the John Lewis Partnership (JLP) receivables to the securitised portfolio in July 2023. While the historical data of JLP receivables as a new credit card type is still relatively short and has yet to normalise, the available performance history to date shows low charge-off rates and high MPPRs. Based on the trend of latest performance data and the current compositions of different receivable types in the securitised portfolio, Morningstar DBRS elected to maintain the expected MPPR at 20%.

A period of gradual increases in reported yields since mid-2022 was the result of NewDay's active repricing activities following the increases in the Bank of England base rate. Due to the high MPPRs, the JLP receivables generate relatively low yields which dampen the increases in portfolio yields. The total yields remained relatively stable throughout 2024, with 24.7% reported for the month of December 2024. Based on the trend of recent performance data and the current compositions of different receivable types in the securitised portfolio, Morningstar DBRS also maintained the expected yield at 22%.

The reported charge-off rates of the securitised portfolio have been between 5% and 7% since March 2020 until April 2023 when it reached a record high of 7.9% before receding to below 4% in December 2023 after the addition of the JLP receivables. The levels stabilised in 2024 and most recently at 4.6% for the month of December 2024. While the trend of recent performance data is encouraging, Morningstar DBRS continued to maintain the expected charge-off rate at 7.5%.

Morningstar DBRS notes the addition of the JLP receivables into the securitised portfolio contributes favourably to the collateral performance and the receivables balance of the securitised portfolio has steadily declined to a similar level before the inclusion of the JLP receivables. As the performance data of the JLP receivables is still not considered normalised, Morningstar DBRS will continue to monitor the transaction performance.

Morningstar DBRS' credit ratings on the Notes 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' credit ratings on the notes also address the credit risk associated with the increased rate of interest applicable to the notes if the notes are not redeemed on the initial scheduled redemption date as defined in and in accordance with the applicable transaction documents.

Morningstar DBRS' credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents 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, 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.

Morningstar DBRS analysed the transaction structure in Intex Deal Maker.

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 (18 September 2024) https://dbrs.morningstar.com/research/439583.

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

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

An asset and a cash flow analysis were both conducted.

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 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, and monthly servicer reports:
-- Total managed portfolio: monthly historical dynamic data from January 2007 to October 2023 in respect of the receivables balances, monthly payment rates, gross charge-offs, yield, delinquencies, and purchase rates.
-- The monthly receivables balance and accounts of JLP, Foundation partners, and Amazon (Platinum and Classic) migration to Pulse from November 2020 to November 2024.
-- Stratification tables related to the securitised portfolio as of 31 December 2024.

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

At the time of the initial credit ratings for NewDay Partnership Master Issuer Series 2023-1, Morningstar DBRS was supplied with a third-party assessment. At the time of the initial credit ratings for the NewDay Partnership Loan Note Issuer VFN-P1 related subseries, Morningstar DBRS was not supplied with third-party assessments. However, this did not impact 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 NewDay Partnership Master Issuer Series 2023-1 took place on 22 January 2024 when the credit ratings were confirmed and upgraded. The last credit rating action on NewDay Partnership Loan Note Issuer VFN-P1 related subseries also took place on 22 January 2024 when the credit ratings were removed from the Under Review with Negative Implications status, confirmed, discontinued and downgraded.

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:

-- Expected MPPR of 20%
-- Expected yield of 22%
-- Expected charge-off rate of 7.5%

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:

NewDay Partnership Master Issuer, Series 2023-1
-- Class A Notes: AAA (sf), AAA (sf), AAA (sf), AAA (sf).
-- Class B Notes: AA (sf), AA (sf), AA (sf), AA (low) (sf).
-- Class C Notes: A (sf), A (sf), A (high) (sf), A (low) (sf).
-- Class D Notes: BBB (sf), BBB (low) (sf), BBB (sf), BB (high) (sf).

NewDay Partnership Loan Note Issuer VFN-P1:
-- V1 Class A Loan Note: BBB (low) (sf), BB (high) (sf), BBB (sf), BB (high) (sf).
-- V2 Class A Loan Note: AA (high) (sf), AAA (sf), AAA (sf), AA (high) (sf).
-- V2 Class B Loan Note: A (high) (sf), AA (sf), AA (sf), A (high) (sf).
-- V2 Class C Loan Note: BBB (high) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf).
-- V2 Class E Loan Note: BBB (low) (sf), BB (high) (sf), BBB (low) (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, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Credit Rating Dates:
7 July 2023: NewDay Partnership Master Issuer, Series 2023-1
15 December 2017: NewDay Partnership Loan Note Issuer, VFN-P1 V1 and VFN-P1 V2

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 Consumer and Commercial Asset-Backed Securitisations (18 September 2024), https://dbrs.morningstar.com/research/439583
-- Rating European Structured Finance Transactions Methodology (19 November 2024), https://dbrs.morningstar.com/research/443199
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024), https://dbrs.morningstar.com/research/439913
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024), https://dbrs.morningstar.com/research/443196
-- 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
-- Master European Structured Finance Surveillance Methodology (19 November 2024), https://dbrs.morningstar.com/research/443204

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