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Rating Action:

Moody's assigns definitive rating to the asset-backed securities (ABS) notes issued by Penarth Master Issuer Plc

19 Apr 2016

London, 19 April 2016 -- Moody's Investors Service, ("Moody's") has today assigned the following definitive rating to the asset-backed securities (ABS) notes issued by Penarth Master Issuer Plc (the "Issuer"):

USD 500.0M Series 2016-1 A1 Notes, Definitive Rating Assigned Aaa (sf)

The Series 2016-1 A1 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 has also determined that the issuance of the 2016-1 A1 Notes will not, in and of itself and at this time, result in a reduction or withdrawal of the current ratings of the pre-existing notes issued out of the Penarth Master Issuer Plc's program. Please see moodys.com for a list of the current ratings of the pre-existing notes.

DESCRIPTION OF TRANSACTION AND ISSUER

This is the fifteenth 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", A1 / P-1 Bank Deposits; Aa3(cr)) and Lloyds Bank Plc ("Lloyds Bank", A1/ P-1 Bank Deposits; Aa3(cr)) in the UK using the Halifax, Bank of Scotland and Lloyds brands.

The transaction uses the same receivables trust structure, which was 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. In February 2016 BOS added further designated accounts with receivables outstanding of GBP915.5million to the Penarth Receivables Trust as part of its regular top up process. BOS also removed from the trust GBP193.4million receivables that were classified as potentially impaired for the purposes of the LCR Regulations. Details of these portfolios have been provided to Moody's. The total trust size as of February 2016 including the removals, top up and assuming the proposed addition had taken place prior to 29 February 2016, is GBP 8.1 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. The Rated Notes are scheduled to redeem in March 2018.

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 December 2015, 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.

RATINGS RATIONALE

The definitive rating of the Rated Notes is 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, as protection against losses; (iii) the excess spread available to the transaction; (iv) the structural and legal integrity of the transaction, including the cross currency swap; 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.

The definitive rating addresses the expected loss posed to investors by the legal final maturity date of the Rated Notes.

In Moody's opinion, the structure allows for timely payment of interest and ultimate payment of principal of the Rated Notes at par on their rated legal final maturity date in 2020. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors.

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.

The primary source of assumption uncertainty is the current macroeconomic environment: further increase in the unemployment rate in the UK as a result of a deterioration of the country economy beyond stresses already applied may have a significant impact on the assigned ratings. Overall, Moody's forecasts that UK GDP growth will be 2.3% while unemployment rate will be 5.1% throughout 2016.

DESCRIPTION OF METHODOLOGY

The principal methodology used in this rating was Moody's Approach to Rating Credit Card Receivables-Backed Securities published in June 2015. Please see the Ratings 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, the Aaa LGSD is 33.1%.

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 Aa3(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 the minimum Aaa CE is 10.6%.

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.

The key parameters used in rating the Rated Notes can be viewed in "Moody's publishes updated UK card ABS assumptions" (10 July 2015) which can be found on www.moodys.com.

PARAMETER SENSITIVITIES

Parameter sensitivities provide a quantitative, model-indicated calculation of the number of notches that a Moody's-rated structured finance security may vary if certain input parameters used in the initial rating process differed.

In rating credit cards, the sponsor rating (or CR Assessment) and the long run charge off rate assumption are two key parameters in Moody's modelling of the Rated Notes. Parameter sensitivities for this transaction have been tested by lowering the sponsor's CR Assessment by 1 and 2 notches and by increasing the long run charge off assumption by 1% and 2%, respectively.

Assuming all else remains equal, the model outputs indicate that the ratings of the Rated Notes would not be affected by a 2 notch downgrade of the sponsor's CR Assessment combined with a 2% increase in long run charge off rates.

This analysis assumes that the deal has not aged. It is also not intended to measure how the rating of the security might migrate over time, but rather how the initial rating of the Rated Notes could differ as certain key input parameters are varied at closing.

Factors that would lead to a downgrade of the rating:

Moody's could downgrade the rating 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 rating 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_1023759.

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.

Lyudmila Udot
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
SUBSCRIBERS: 44 20 7772 5454

Daniel Kolter
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns definitive rating to the asset-backed securities (ABS) notes issued by Penarth Master Issuer Plc
No Related Data.
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