Morningstar DBRS Takes Credit Rating Actions on London Cards No. 1 plc and London Cards No. 2 plc

DBRS Ratings Limited (Morningstar DBRS) took credit rating actions on the following classes of notes (the Rated Notes) issued by London Cards No. 1 plc and London Cards No. 2 plc:

London Cards No. 1 plc
-- Class A Loan Note confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (low) (sf)
-- Class D Notes confirmed at BBB (low) (sf)
-- Class E Notes upgraded to B (high) (sf) from B (low) (sf)
-- Class F Notes confirmed at CCC (sf)
-- Class X Notes confirmed at BB (high) (sf)

London Cards No. 2 plc
-- Class A Notes confirmed at AAA (sf)
-- Class B Notes confirmed at AA (sf)
-- Class C Notes confirmed at A (low) (sf)
-- Class D Notes confirmed at BBB (low) (sf)
-- Class E Notes confirmed at BB (low) (sf)
-- Class F Notes confirmed at CCC (sf)
-- Class X Notes confirmed at BB (high) (sf)

Morningstar DBRS did not rate the Class G Notes or the Class Z VFN also issued in the transactions.

The credit ratings of the Class A Loan Note, Class A Notes, Class B Notes and Class C Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The credit ratings of the Class D, Class E, Class F and Class X Notes address the ultimate payment of scheduled interest but timely once they are the most senior class outstanding, and the ultimate repayment of principal by the legal final maturity date.

The upgrade of London Cards No. 1 plc Class E Notes is because of the increase in excess spread as a result of continued repayment of the Class X Notes which is senior to the transaction's lowest-ranked Class G loss makeup and the Bank of England interest rate cuts since the last review in June 2024.

The Rated Notes together with Class G Notes of each transaction are backed by a respective portfolio of credit card receivables granted by New Wave Capital Limited trading as Capital on Tap (the originator) to small and medium-size enterprises (SMEs) domiciled in the United Kingdom of Great Britain and Northern Ireland (UK). The originator is also the servicer with Lenvi Servicing Limited (Lenvi) in place as the back-up servicer.

CREDIT RATING RATIONALE

Morningstar DBRS based the credit rating actions on a review of the following analytical considerations:
-- The transactions' capital structure, including form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the issuers' financial obligations according to the terms under which the Rated Notes are issued
-- The credit quality and the characteristics of the collateral, its historical performance and Morningstar DBRS' expectation of charge-offs, monthly principal payment rate (MPPR) and yield rates under various stress scenarios.
-- The originator's capabilities with respect to originations, underwriting and servicing and Lenvi's capacity with respect to servicing
-- The transaction parties' financial strength regarding their respective roles
-- Morningstar DBRS' long-term sovereign rating on the UK, which is currently AA with a Stable trend
-- The consistency of the transactions' legal structure with the Legal and Derivative Criteria for European Structured Finance Transactions methodology

TRANSACTION STRUCTURE
Each transaction is the only note series of the respective Issuer, as there are covenants and restrictions limiting further financial indebtedness such as any future issuance.

Both transactions have a scheduled 36-month revolving period with 14 and 24 months remaining for London Cards No. 1 plc and London Cards No. 2 plc, respectively. 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 a performance trigger or servicer termination. The servicer may extend the scheduled revolving period by up to 12 months. If the Rated Notes (excluding Class X Notes) and Class G Notes are not fully redeemed at the end of the scheduled revolving period, the transaction will enter into an amortisation period where the Rated Notes (excluding the Class X Notes) and Class G Notes will be redeemed sequentially.

Both transactions also include a liquidity reserve that is currently maintained at the respective target amount of 2% and 1% of the outstanding principal balances of the Rated Notes (excluding the Class X Notes) and Class G Notes for London Cards No. 1 plc and London Cards No. 2 plc. Both reserves are replenished in the transaction's interest waterfalls and are available to cover the respective shortfalls in senior expenses, interest payments on the Class A, Class B and Class C Notes, and Class A and Class B loss makeup. Both reserves would amortise to the target amount without a floor during the amortisation period.

As the Rated 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 Sonia-based floating-rate Rated Notes. While the potential risk is to a certain degree mitigated by excess spread and the ability of the originator or relevant entity to increase the credit card contractual rates, the transactions are exposed to the risk of further interest rate hikes. Morningstar DBRS analysed such risk and sensitivity to further rapid interest rate hikes in its analysis with commensurate credit ratings.

COUNTERPARTIES
Barclays Bank PLC (Barclays) is the account bank for both transactions. Based on Morningstar DBRS Long-Term Issuer Rating of `A' on Barclays and the downgrade provisions outlined in the transaction documentation, Morningstar DBRS considers the risk arising from the exposure to the account bank to be commensurate with the credit ratings of the Rated Notes.

PORTFOLIO ASSUMPTIONS
The MPPRs of the originator's total managed portfolio averaged around 40% in 2017 with a gradual decline to approximately 30% until April 2020. Since then, MPPRs have been increasing and reached a record high of more than 70% in November 2023, reflecting an increasing percentage of customers that pay off the balances in full each month over the same period. This is consistent with the originator's strategy to focus on the transactors and the SME nature of this portfolio where the borrowers may elect to pay off the balances more frequently to have the credit limit available for working capital.

The most recent March 2025 investor reports continue to show total payment rates (60.6% and 86.5% for London Cards No. 1 plc and London Cards No. 2 plc, respectively) higher than the historical levels before April 2020 and remain stable in light of the current macroeconomic challenges of inflationary pressures and higher interest rates. After considering historical data and trends, Morningstar DBRS maintained the expected portfolio MPPR at 28% for both transactions based on the expected compositions of transactor and non-transactor (revolver) and respective MPPRs (100% for the transactors).

Portfolio yield includes interest income, fees and interchange. Due to the corporate nature of the borrowers, there is no regulatory constraint of the maximum permissible rate or interchange on the cards and the card interest rates vary substantially based on the perceived credit risk by the originator. While the yields of the originator's total managed portfolio have been relatively stable between 35% and 40%, the interchange component has been increasing since December 2021 because of the originator's strategy pivot to transactors with a corresponding decline in interest income. On the other hand, the investor reports showed stable interchange yields as of March 2025. Recognising the trend and the expected composition percentages of transactors and revolvers and respective yields, Morningstar DBRS maintained the expected portfolio yield at 35.5% for both transactions.

The historical total managed portfolio charge-offs averaged around 15% before plummeting during the initial COVID-19 pandemic outbreak in 2020. They have since gradually increased but remained below the pre-pandemic levels in part because of increased transactor amounts in the portfolio. Charge-offs of London Cards No. 2 plc fluctuated between 8% and 10% post-closing, most recently at 8.5% as of March 2025. The charge-offs of London Cards No. 1 plc are around 7.5% as of March 2025 after some volatility between May 2024 and December 2024. Based on the historical trends of the portfolio and the expected composition percentages of transactors and revolvers and respective charge-offs (nil for the transactors), Morningstar DBRS maintained the expected portfolio charge-off rate at 14.5% for both transactions.

Morningstar DBRS also maintained the asset performance stress over a longer period for below investment grade levels.

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' credit ratings do 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
An ESG consideration continues to have a relevant effect on the credit analysis.

Environmental (E) and Social (S) Factors
There were no Environmental or Social factor(s) that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
Morningstar DBRS notes there is a relevant but not significant effect of transaction governance factor on the credit analysis due to some unusual receivable replenishment criteria where the addition restrictions are only limited to third-party originated accounts. This may result in potentially larger credit migration during the revolving period and may lead to changes in borrower behaviour that could subsequently impact future defaults and/or repayments. Morningstar DBRS considers such exposure as a relevant governance factor within its credit analysis.

While being credit relevant, the credit ratings are not affected by this ESG consideration.

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 British pound sterling unless otherwise noted.

The principal methodologies applicable to the credit ratings are Rating European Consumer and Commercial Asset-Backed Securitisations (18 September 2024) https://dbrs.morningstar.com/research/439583 and Master European Structured Finance Surveillance Methodology (4 February 2024) https://dbrs.morningstar.com/research/447080.

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.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating actions.

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 investor reports between August 2023 and March 2025 as well as monthly historical dynamic data of the entire originator's portfolio including originations, receivables balances, payment rates, yields, charge-off rates, delinquencies and purchase rates from February 2017 to December 2023.

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 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 actions on London Cards No. 1 plc took place on 19 June 2024, when Morningstar DBRS confirmed its credit ratings. The last credit rating actions on London Cards No. 2 plc took place on 16 April 2024, when Morningstar DBRS finalised its credit ratings.

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: 28%
-- Expected yield: 35.5%
-- Expected charge-off rate: 14.5%

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, 15% decrease in the expected yield and 15% increase in the expected charge-off rate

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

London Cards No. 1 plc
Class A Loan Note: AA (high) (sf), AAA (sf), AA (high) (sf), AA (sf)
Class B Notes: A (high) (sf), AA (low) (sf), A (high) (sf), A (low) (sf)
Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf)
Class D Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf)
Class E Notes: B (high) (sf), B (sf), B (high) (sf), B (low) (sf)

London Cards No. 2 plc
Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf)
Class B Notes: A (sf), A (high) (sf), A (sf), BBB (high) (sf)
Class C Notes: BBB (high) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf)
Class D Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf)
Class E Notes: B (high) (sf), B (high) (sf), B (high) (sf), B (sf)

Morningstar DBRS does not conduct any sensitivity analysis on the Class F or Class X Notes.

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
Credit Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Dates:
London Cards No. 1 plc: 5 June 2023
London Cards No. 2 plc: 2 April 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 Consumer and Commercial Asset-Backed Securitisations (18 September 2024),
https://dbrs.morningstar.com/research/439583
-- Master European Structured Finance Surveillance Methodology (4 February 2025),
https://dbrs.morningstar.com/research/447080
-- Rating European Structured Finance Transactions Methodology (19 November 2024),
https://dbrs.morningstar.com/research/443199
-- 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
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- 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.