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Rating Action:

Moody's assigns definitive ratings to PCL Funding V PLC ABS

22 Apr 2021

GBP 283.5 million ABS Notes rated, relating to a portfolio of UK premium finance loans

London, 22 April 2021 -- Moody's Investors Service ("Moody's") has assigned the following definitive ratings to Notes issued by PCL Funding V PLC:

....GBP 256.5M Class A Floating Rate Notes due October 2025, Definitive Rating Assigned Aaa (sf)

....GBP 18.0M Class B Floating Rate Notes due October 2025, Definitive Rating Assigned A2 (sf)

....GBP 9.0M Class C Floating Rate Notes due October 2025, Definitive Rating Assigned Baa1 (sf)

Moody's has not assigned a rating to the GBP 16.5M Class D Asset-Backed Notes Due October 2025, which have also been issued at closing of the transaction.

Moody's has also determined that the issuance of notes by PCL Funding V PLC will not, in and of itself and at this time, result in a reduction or withdrawal of the current ratings of the outstanding notes issued out of PCL Funding III Limited and PCL Funding IV PLC, and rated by Moody's. Please see moodys.com for a list of the current ratings of the outstanding notes.

RATINGS RATIONALE

PCL Funding V PLC is a 2.5 years revolving cash securitisation of insurance and non-insurance premium finance loans originated by Premium Credit Limited (NR) ("PCL") to private individuals and corporates located in the UK and Ireland. This is the fifth issuance out of an existing master trust structure. PCL Funding V PLC will become a fifth beneficiary of an Eligible Trust declared by an orphan SPV established in February 2017, which holds substantially all assets of PCL. The other beneficiaries are Premium Credit Limited as the originator, PCL Funding IV PLC, PCL Funding III PLC and PCL Funding I Limited. PCL Funding I Limited is an SPV with an existing variable funding facility provided by a consortium of private lenders.

Moody's have been rating facilities from PCL Funding I Limited since October 2012, the notes issued by PCL Funding III PLC since November 2017 and the notes issued by PCL Funding IV PLC since October 2020.

The portfolio of underlying assets consists of fixed rate short-terms premium finance loans distributed through insurance brokers and other service providers. The receivables in the portfolio finance insurance as well as non-insurance premiums (e.g. sports clubs, professional organisations membership fees, school fees etc.) for corporate and private clients, who wish to pay in installments rather than in lump sum.

Most receivables benefit from recourse to multiple parties besides the borrowers, such as insurance companies, insurance brokers, service providers and schools. As of 31 January 2021, the asset trust portfolio consists of approximately 1.6 million receivables with a weighted average original term of 10.3 months and outstanding balance of approximately GBP 1 billion.

The transaction credit strengths include the granularity of the portfolio, low historical losses on the underlying collateral due to multiple recourse options, available reserve fund, relatively high excess spread, sequential cash flow allocation and independent cash manager. The transaction credit challenges include operational risk and complexity of cash flow allocations, revolving master trust structure, high correlation between trust performance and PCL, unhedged interest rate and currency risks and unrated originator and servicer. Various mitigants have been put in place in the transaction structure, such as a warm back-up servicer at closing, early amortisation triggers linked to portfolio performance and portfolio concentration limits.

Our analysis focused, among other factors, on (i) an evaluation of the underlying portfolio of receivables; (ii) historical performance on defaults and recoveries from January 2007 to January 2021; (iii) the credit enhancement provided by subordination, excess spread and cash reserve; (iv) the liquidity support available in the transaction by way of principal to pay interest and the cash reserve fund; and the (v) overall legal and structural integrity of the transaction.

Collateral performance assumptions:

Moody's determined the portfolio lifetime mean default rate of 8.1%, expected recoveries of 75.0% and Aaa portfolio credit enhancement ("PCE") of 14.0%. The mean default rate and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Mean loss and PCE are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in its ABSROM cash flow model.

The portfolio expected mean default level of 8.1% is slightly worse than the EMEA consumer loans average and is based on Moody's assessment of the lifetime expectation for the pool taking into account: (1) UK market trends; (2) limited benchmarks in the UK insurance premium finance receivables market; (3) the expected outlook for the UK economy in the medium term; and (4) the revolving period and eligibility criteria. The portfolio expected recovery rate of 75% is higher than the EMEA consumer loans average due to multiple recourse options in case of an obligor default.

The PCE of 14.0% is in line with EMEA consumer loan peers on average and is based on: (i) historical data variability; (ii) quantity, quality and relevance of historical performance data; (iii) originator quality; (iv) servicer quality including servicing transfer; (v) certain pool characteristics, such as asset concentration; and (vi) certain structural features, such as eligibility criteria and revolving periods. The PCE of 14.0% results in an implied coefficient of variation ("CoV") of 50%.

The definitive rating of Class C is one notch higher than its provisional rating because the final margins of the notes are materially lower than originally anticipated, hence the transaction overall benefits from higher excess spread.

CURRENT ECONOMIC UNCERTAINTY:

The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in UK economic activity.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

METHODOLOGY

The principal methodology used in these ratings was "Insurance Premium Finance-Backed Securitizations Methodology" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1198403. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may cause an upgrade of the ratings of the Class B & C notes include significantly better than expected performance of the pool together with an increase in credit enhancement of the notes.

Factors that may cause a downgrade of the ratings of the notes include a worsening in the overall performance of the pool, or a significant deterioration of the credit profile of key transaction counterparties.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the 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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Radostina Kumchev
Vice President - Senior 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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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