Morningstar DBRS Assigns Provisional Credit Ratings to Hermitage 2025 plc

DBRS Ratings Limited (Morningstar DBRS) assigned provisional credit ratings to the following classes of notes (collectively, the Rated Notes) to be issued by Hermitage 2025 plc (the Issuer):

-- Class A Notes at (P) AAA (sf)
-- Class B Notes at (P) AA (sf)
-- Class C Notes at (P) A (low) (sf)
-- Class D Notes at (P) BBB (sf)
-- Class E Notes at (P) BB (high) (sf)

Morningstar DBRS does not rate the Class F Notes also expected to be issued in this transaction.

The credit ratings on the Class A Notes and Class B Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the final maturity date. The credit ratings on the Class C Notes and Class D Notes address the ultimate payment of scheduled interest (or timely when they are the most senior class of notes outstanding) and the ultimate repayment of principal by the final maturity date. The credit rating on the Class E Notes addresses the ultimate payment of scheduled interest and the ultimate repayment of principal by the final maturity date.

The transaction is a securitisation of a portfolio of equipment hire purchase and finance lease receivables granted by Haydock Finance Limited (Haydock, or the Seller) to borrowers incorporated in England, Scotland, and Wales. Haydock will also act as the initial servicer for the transaction (the Servicer).

CREDIT RATING RATIONALE
Morningstar DBRS based its provisional credit ratings on a review of the following analytical considerations:
-- The transaction's structure, including 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 Rated Notes are expected to be issued;
-- The credit quality of Haydock's portfolio, the characteristics of the collateral, its historical performance, and the Morningstar DBRS-projected behaviour under various stress scenarios;
-- Haydock's capabilities with regard to originations, underwriting, and servicing as well as its position in the market and financial strength;
-- The operational risk review of Haydock, which Morningstar DBRS deems to be an acceptable Servicer;
-- The transaction parties' financial strength with regard to their respective roles;
-- The expected consistency of the transaction's legal structure with Morningstar DBRS' "Legal and Derivative Criteria for European Structured Finance Transactions" methodology; and
-- Morningstar DBRS' sovereign credit rating on the United Kingdom of Great Britain and Northern Ireland, currently at AA with a Stable trend.

TRANSACTION STRUCTURE
The transaction has a revolving period of nine months, during which additional receivables may be purchased subject to eligibility criteria and portfolio concentration limits.

During the revolving period, the Issuer applies the available principal receipts in accordance with two separate principal and interest priorities of payments. Prior to a sequential amortisation switch, principal is allocated on a pro rata basis. Following a sequential amortisation switch, principal is allocated on a sequential basis. Once the amortisation becomes sequential, it cannot switch to pro rata. Sequential redemption events include, among others, the breach of performance related triggers on the principal deficiency ledger (PDL) and cumulative default ratio, the Seller not exercising the call option, or a shortage of the liquidity reserve required amount.

Available revenue receipts are available to cover principal deficiencies, and, in certain scenarios, principal may be diverted to pay interest on the Class A Notes to the Rated Notes. The principal-to-interest mechanism is designed to cover senior interest shortfalls related to insufficient revenue receipts available to cover senior expenses and fees, as well as interest on the most-senior class of Rated Notes outstanding. Such principal-to-interest reclassifications, along with any defaults, are recorded on the applicable PDLs in a reverse-sequential order.

The transaction benefits from a liquidity reserve fund (LRF) split into Class A/B, Class C, Class D, and Class E LRF ledgers. The Class A/B LRF ledger is fully funded at closing through a subordinated loan to 1.7% of the Class A and B Notes' balance and includes a minimum level of 0.3% of the initial outstanding balance of the Class A and B Notes. Following the redemption of the Class A and Class B Notes, the other reserve ledgers will be funded through excess spread up to 1.7% of their respective outstanding principal balance.

COUNTERPARTIES
U.S. Bank Europe DAC, U.K. Branch has been appointed as the Issuer's account bank for the transaction. Morningstar DBRS privately rates U.S. Bank Europe DAC, U.K. Branch and concluded that the bank meets the criteria to act in this capacity. The transaction documents are expected to contain downgrade provisions relating to the account bank consistent with Morningstar DBRS' criteria.

Citibank Europe plc, UK Branch is expected to be appointed as the swap counterparty for the transaction. Morningstar DBRS maintains a public rating of AA (low) with a Stable trend on Citibank Europe plc and considers the UK branch to meet the criteria to act in this capacity. The hedging documents are expected to contain downgrade provisions consistent with Morningstar DBRS' criteria.

Morningstar DBRS' credit rating on the Rated Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations of the Rated Notes are the related interest and principal payments.

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 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 (16 May 2025) at https://dbrs.morningstar.com/research/454196.

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 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 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 Credit 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 Seller and its agents. Morningstar DBRS received the following:
-- Quarterly credit defaults from Q1 2017 to January 2025 split into total, total excluding Coronavirus Business Interruption Loan Scheme (CBILS), Recovery Loan Scheme (RLS), and Growth Guarantee Scheme (GGS), and total excluding CBILS, RLS, GGS, and one-off items;
-- Quarterly recovery data from Q1 2017 to January 2025 split into total, total excluding CBILS, RLS, and GGS, and total excluding CBILS, RLS, GGS, and one-off items;
-- Monthly dynamic prepayment data from January 2017 to January 2025;
-- Monthly dynamic arrears from January 2017 to January 2025; and,
-- Loan tape as of 31 March 2025 and its related amortisation schedule.

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 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

These credit ratings concern expected-to-be-issued new financial instrument. These are the first Morningstar DBRS credit ratings on these financial instruments.

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 ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):
-- Expected default rate: 6.85%
-- Expected recovery rate: 60.0%
-- Loss given default (LGD): 67.0% in AAA (sf), 63.4% in AA (sf), 56.2% in A (low) (sf), 52.6% in BBB (f) and 49.0% in BB (high) (sf)

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.

Morningstar DBRS concludes that the expected credit ratings under the eight stress scenarios would be as follows:
-- Class A Notes: AA (high) (sf), AA (sf), AA (high) (sf), AA (sf), AA (sf), A (high) (sf), AA (low) (sf), A (sf)
-- Class B Notes: A (high) (sf), A (sf), A (high) (sf), A (sf), A (sf), BBB (high) (sf), A (low) (sf), BBB (sf)
-- Class C Notes: BBB (sf), BBB (low) (sf), BBB (high) (sf), BBB (sf), BBB (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf)
-- Class D Notes: BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (high) (sf), BB (sf), BB (sf), B (high) (sf)
-- Class E Notes: BB (high) (sf), BB (low) (sf), BB (high) (sf), BB (sf), BB (low) (sf), B (high) (sf), B (high) (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: Miklos Halasz, Vice President
Rating Committee Chair: Paolo Conti, Associate Managing Director
Initial Rating Date: 28 May 2025

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
-- 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 (16 May 2025),
https://dbrs.morningstar.com/research/454196
-- Rating CLOs Backed by Loans to European SMEs and SME Diversity Model v.2.7.1.5 (19 November 2024),
https://dbrs.morningstar.com/research/443198

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.