DBRS Confirms A (sf) Rating on the Class A VFN Notes of Securitisation of Catalogue Assets Limited

DBRS Ratings Limited (DBRS) has today confirmed its A (sf) ratings on the Class A VFN notes issued by Securitisation of Catalogue Assets Limited (SOCA) (the Issuer).

The confirmation of the rating on the Class A VFN notes is based on the following analytical considerations:
-- Execution amendments signed on 21 October 2016. The amendments envisage the extention of the current revolving period and final legal maturity date by one more year until 1 December 2019 and 13 November 2025, respectively.
-- Portfolio performance in terms of charge-off, payment and cash yield rate as of the October 2016 payment date.
-- Given that the transaction is still in its revolving period, no early amortisation events have occurred.
-- The current available credit enhancement to the Class A VFN notes to cover the expected losses assumed in line with the A (sf) rating level.

The Class A VFN notes are backed by a pool of home shopping receivables granted to private individuals originated by Shop Direct Finance Company Limited in the United Kingdom.

As of the October 2016 payment date, the performance triggers in place to monitor the deterioration of the portfolio have not been breached. In particular, the three-month moving averages of the monthly payment rate, monthly delinquency ratio (one to five months past due) and monthly portfolio default rate were at 9.6%, 11.1% and 1.1%, respectively, above or below their limits of 7.5%, 22.5% and 1.75%, respectively.

The structure envisages two classes of notes: Class A VFN and Class B VFN. DBRS rates Class A VFN only. The Class A VFN Maximum Commitment Amount is equal to £1,215,000,000, while the Class B VFN Maximum Commitment Amount is equal to £100,000,000. The Class A VFN credit support of 28.00% includes overcollateralisation and Class B VFN subordination.

The Royal Bank of Scotland plc (RBS) acts as Issuer Account Bank for this transaction. The Issuer Account Bank’s reference rating of A (low), being one notch below the DBRS Long-Term Critical Obligation Rating of RBS at “A,” complies with the Minimum Institution Rating, given the rating assigned to the Class A VFN, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in GBP unless otherwise noted.

The principal applicable methodology is the Master European Structured Finance Surveillance Methodology.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. DBRS conducted a review of the Amendment Agreement, which spells out the amendment under consideration. The other transaction legal documents have remained unchanged since the most recent rating action and were not reviewed.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction and there being no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

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

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include performance data and monthly reports provided by Shop Direct Finance Company Limited through the arranger (HSBC Bank plc). DBRS received monthly dynamic historical performance data on balance, payment, loss and recovery data divided by aging and pool composition relating to originations.

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

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 20 November 2015 when the rating of A (sf) was confirmed on the Class A VFN.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

-- DBRS expected the Base Case monthly payment rate, cash yield and charge-off rate for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to Base case assumptions and therefore have a negative effect on credit ratings.

-- The Base case portfolio monthly payment rate, cash yield and charge-off rates of the current pool of receivables are 7.49%, 11.33% and 19.20%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected for the Class A VFN notes if each variable was stressed over the Base case assumption, while holding the other variables constant. For example, if the charge-off rate increases by 50%, the rating for the Class A VFN notes would be expected to drop to BBB (sf), all else being equal. If the payment rate decreases by 50%, the rating for the Class A VFN notes would be expected to drop to BB (sf), all else being equal.

-- While holding the Payment and Cash Yield Rate constant, a hypothetical increase of the Base Case Charge-Off Rate by 25% would result in a downgrade of the rating of the Class A VFN notes to BBB (sf).
-- While holding the Payment and Cash Yield Rate constant, a hypothetical increase of the Base Case Charge-Off Rate by 50% would result in a downgrade of the rating of the Class A VFN notes to BBB (sf).
-- While holding the Charge-Off and Cash Yield Rate constant, a hypothetical decrease of the Base Case Payment Rate by 25% would result in a downgrade of the rating of the Class A VFN notes to BBB (sf).
-- While holding the Charge-Off and Cash Yield Rate constant, a hypothetical decrease of the Base Case Payment Rate by 50% would result in a downgrade of the rating of the Class A VFN notes to BB (sf).
-- While holding the Charge-Off and Payment Rate constant, a hypothetical decrease of the Base Case Cash Yield by 25% would result in a downgrade of the rating of the Class A VFN notes to BBB (sf).
-- While holding the Charge-Off and Payment Rate constant, a hypothetical decrease of the Base Case Cash Yield by 50% would result in a downgrade of the rating of the Class A VFN notes to BBB (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Antonio Di Marco, Senior Financial Analyst
Rating Committee Chair: Chuck Weilamann, Managing Director
Initial Rating Date: 25 November 2013

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.