London, 22 July 2019 -- Moody's Investors Service ("Moody's") has today assigned the following
definitive ratings to the credit card asset-backed securities (ABS)
Notes issued by Penarth Master Issuer plc (the "Issuer"):
....USD 300.0M Series 2019-1
A1 Notes, Definitive Rating Assigned Aaa (sf)
....GBP 300.0M Series 2019-1
A2 Notes, Definitive Rating Assigned Aaa (sf)
....GBP 500.0M Series 2019-1
A3 Notes, Definitive Rating Assigned Aaa (sf)
The Series 2019-1 A1, A2 and A3 Notes are referred to as
the "Rated Notes". All Notes issued by the Issuer, including
the Rated Notes, are together referred to as the "Notes".
Moody's also affirms the existing ratings of Notes issued by Penarth Master
Issuer Plc's program. Please see moodys.com for a list of
the current ratings of the pre-existing Notes.
RATINGS RATIONALE
DESCRIPTION OF TRANSACTION AND ISSUER
This is the eighteenth issuance under the Penarth Master Issuer plc's
Note issuance program. Today's rating action reflects the characteristics
of the Rated Notes which are ultimately backed by credit-card receivables
in the Penarth receivables trust. The assets comprise receivables
arising under designated MasterCard, Visa and American Express revolving
credit-card accounts that were originated or acquired by Bank of
Scotland plc ("BOS", Aa3/P-1 Bank Deposits; Aa2(cr))
and Lloyds Bank Plc ("Lloyds Bank", Aa3/ P-1 Bank Deposits;
Aa2(cr)) in the UK using the Halifax, Bank of Scotland and Lloyds
brands.
In January 2018, American Express announced its decision to withdraw
from all licencing arrangements in the European Union and to wind down
all existing partnership operations. Approximately 8% of
the pool have an American Express Card. Lloyds Banking Group are
developing alternative product offerings to customers which will look
to mitigate any material attrition of balances from its portfolio.
Lloyds Banking Group acquired the MBNA credit card business from Bank
of America in June 2017, however receivables from these accounts
do not currently form part of the securitised portfolio.
The transaction uses a receivables trust structure which established in
October 2008. At the time, BOS assigned all receivables that
had arisen, or could arise, in respect of eligible accounts
- acquired or originated under certain designated product lines
- to the receivables trustee. From November 2010,
BOS acquired all of the present and future beneficial interest in receivables
arising on certain designated revolving credit-card accounts originated
by Lloyds Bank and these receivables have also been assigned to the receivables
trustee. Further eligible accounts have since been added to the
receivables trust from both originators. The servicing and administration
of each pool of receivables is done by each respective originating bank.
The total trust size as of May 2019 is GBP 7.8 billion.
The transaction features a two-issuer structure whereby,
upon new debt issuance: (i) the proceeds of the Notes sold to investors
are used to finance the Issuer's purchase of a global loan Note;
and (ii) the loan-note issuer then uses the cash received from
that acquisition to acquire an undivided beneficial interest in the Penarth
Receivables Trust.
Interest on the Notes is paid monthly in order of seniority using the
collections received by the receivables trustee. During the revolving
period, asset principal collections received by the receivables
trustee will be used to fund the transfer of further receivables which
arise under the designated accounts. After the end of the revolving
period, principal collections will be accumulated for the benefit
of noteholders in order that the Notes can be redeemed on their scheduled
maturity date. If the issuer does not fully repay the Notes by
their scheduled maturity date, a rapid amortisation trigger will
be breached. The legal final maturity date of all Notes is two
years after the scheduled redemption date.
Both BOS and Lloyds Bank (through delegation of servicing) currently service
the receivables in the receivables trust. Moody's reviewed the
servicing operations of BOS and Lloyds Bank in March 2019, and has
been receiving regular updates since then. Moody's is of the opinion
that they are well-placed to fulfil their obligations regarding
the servicing of the receivables. The minimum transferor interest
floor is set at 6%, which protects the Notes against set-off,
dilution, fraud or attrition.
The ratings of the Rated Notes are primarily based upon (i) the credit
quality of BOS and Lloyds Bank as sponsors of the trust; (ii) the
minimum credit enhancement levels set for each class of Rated Notes;
(iii) the excess spread available to the transaction; (iv) the structural
and legal integrity of the transaction, including the cross currency
swap in relation to the Series 2019-1 A1 Notes; and (v) the
experience of BOS in its role as servicer, cash manager, account
bank and expenses loan provider and the experience of Lloyds Bank in its
role as originator and delegate servicer.
As is typical in most credit card ABS transactions, there is a high
degree of linkage between the ratings of the Rated Notes to the credit
quality of BOS/Lloyds Bank, who together perform originator,
sponsor, seller, servicer, cash manager, account
bank and expenses loan provider roles.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was 'Moody's Approach
to Rating Credit Card Receivables-Backed Securities' published
in July 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Moody's credit card ABS rating methodology begins by developing a maximum
loss that is consistent with an Aaa (sf) rating ("Aaa LGSD"), assuming
that the sponsor has closed its cardholders' accounts. This scenario
is associated with sponsors that are in or near to default. For
Penarth Master Issuer plc, the Aaa LGSD is 35.8%.
The key parameters used to derive the Aaa LGSD in UK trusts are:
charge off rates (current, long run and peak); payment rates
(current and at start of early amortisation), receivable yield rates
(current, at start of early amortisation and the compression level
due to potential asset-liability mismatches); servicing fees
(current and stressed) and the minimum seller's interest (as per the documents).
In a second step, the level of credit enhancement that is consistent
with an Aaa (sf) rating is determined by lowering the Aaa LGSD by the
applicable "dependency ratio" - this ratio varies according to
the sponsor's credit rating or counterparty risk assessment ("CR Assessment"),
if available. The sponsor's CR Assessment is currently Aa2(cr).
The higher the sponsor's credit rating or CR Assessment as the case may
be, the lower the dependency ratio. The ratio reflects the
likelihood of the sponsor entering default, and so higher rated
sponsors will require lower Aaa enhancement all else being equal.
The result is the minimum Aaa CE, absent other counterparty or operational
risks. For Penarth Master Issuer plc the minimum Aaa CE is 9.7%.
For credit-card-backed securities whose credit enhancement
is less than that consistent with an Aaa (sf) rating, we adjust
the rating of the securities based on the level of credit enhancement
available. Finally, for subordinate securities, additional
adjustments are made to account for the higher severity of loss inherent
due to the smaller sizes and the ranking of those classes of securities.
Factors that would lead to a downgrade of the ratings:
Moody's could downgrade the ratings of the Rated Notes if performance
deteriorates materially. Specifically, if the charge off
rate rises or the payment rate or yield falls. A downgrade of the
sponsor's CR Assessment could also lead to a downgrade of the ratings
of the Rated Notes, given the ongoing role of the bank sponsor as
underwriter, originator, risk manager, servicer and
collector.
Although certain triggers are in place to help decrease, to a certain
extent, the exposure to the sponsor in its various roles,
these will probably not fully mitigate the impact of a significant deterioration
in the sponsor credit quality. Hence, the originator's credit
quality is always an important input in monitoring the transaction.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1186268.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that
stress factors contributing to sensitivity of ratings and take into account
the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its assumptions
of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides certain regulatory disclosures
in relation to the provisional rating assigned, and in relation
to a definitive rating that may be assigned subsequent to the final issuance
of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a
manner that would have affected the rating. For further information
please see the ratings tab on the issuer/entity page for the respective
issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Frank Medrisch, CFA
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Anthony Parry
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
