GBP1.3 Billion of 2010-2 A2, A3 and C1 Notes rated
Paris, December 22, 2010 -- Moody's Investors Service has today assigned the following definitive
long-term credit ratings to the asset-backed notes issued
by Penarth Master Issuer Plc:
....USD750M Series 2010-2 A2 Notes,
Definitive Rating Assigned Aaa (sf)
....GBP300M Series 2010-2 A3 Notes,
Definitive Rating Assigned Aaa (sf)
....GBP175M Series 2010-2 C1 Notes,
Definitive Rating Assigned Baa1 (sf)
RATINGS RATIONALE
The notes will represent the fifth issuance under Penarth Master Issuer
Plc's medium-term note programme and are ultimately backed by credit-card
receivables from the Penarth receivables trust. The assets comprise
receivables arising under designated MasterCard, Visa and American
Express revolving credit-card accounts that Bank of Scotland plc
("BOS"; Aa3/P-1/D+) and Lloyds TSB Bank plc ("LTSB";
Aa3/P-1/C-) have originated (or acquired) in the UK under
Halifax, Bank of Scotland and Lloyds brands.
The transaction uses the existing receivables trust structure, which
was established in October 2008. BOS has assigned all receivables
that had arisen or would arise in the accounts -- acquired
or originated under certain designated product lines --
to the receivables trustee. The transaction involves a two-step
debt issuance process: (i) the proceeds of the rated notes will
be sold to investors to finance the issuer's purchase of a global loan
note; (ii) the loan-note issuer will then use the cash to
acquire an undivided beneficial interest in the Penarth receivables trust.
In addition, on 8 November 2010, BOS acquired all of the present
and future beneficial interests in receivables arising on certain designated
revolving credit-card accounts originated by Lloyds TSB Bank plc
("LTSB"; Aa3/P-1/C-) and transferred these receivables
to the receivables trustee. BOS also delegated to LTSB the servicing
and administration of those receivables.
Interest on the notes will be paid monthly in order of seniority using
the collections received by the receivables trustee. The structure
envisions that -- subject to specific criteria and triggers
and up to a specified date -- the receivables trustee will
use the asset principal collections to fund the transfer of further receivables
that arise under the designated accounts. After this date,
principal collections will be accumulated for noteholders in order to
redeem the notes on their scheduled maturity date. If the issuer
does not fully repay the notes on the scheduled maturity date, a
rapid amortisation trigger will be breached. The notes have a final
redemption date in December 2014 in respect of Series 2010-2 A2
notes, December 2016 in respect of Series 2010-2 A3 notes
and February 2017 in respect of Series 2010-2 C1 notes.
The definitive ratings of the notes are primarily based upon (i) the credit
enhancement level provided by the subordinated notes, as protection
against losses (21.9% in respect of Series 2010-2
A2 and A3 notes and 8% in respect of Series 2010-2 C1 notes);
(ii) the excess spread available to the transaction; (iii) the experience
of BOS and LTSB as originators and servicers of UK credit-card
receivables; (iv) the structural and legal integrity of the transaction;
and (v) the strong credit quality of BOS in its role as servicer,
cash manager, account bank and expenses loan provider and of LTSB
in its role as originator and delegate servicer.
Both BOS and LTSB (through delegation of servicing) currently service
their respective receivables in the receivables trust. Moody's
has recently reviewed the servicing operations of BOS and LTSB and believes
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 aims to protect against set-off,
dilution, fraud or attrition.
Moody's believes that the transaction will perform in the range of 10%-12%
on average for charge-offs, 17%-19%
for yield and 12%-14% for payment-rate.
Moody's performance expectations for a given variable indicate Moody's
forward-looking view of the likely range of performance over the
medium term. From time to time, Moody's may, if warranted,
change these expectations. Performance that falls outside of the
given range may indicate that the collateral's credit quality is stronger
or weaker than Moody's had assumed when it rated the related securities.
Even so, a deviation from the expected range will not necessarily
result in a rating action, nor does performance within expectations
preclude such actions. The decision to take (or not take) a rating
action depends on an assessment of several factors including, but
not limited to, performance metrics.
Primary source of assumption uncertainty is the current macroeconomic
environment: for example, further significant increases in
the unemployment rate in the UK stemming from a deterioration of the country's
economy beyond stresses already applied may impact the assigned ratings.
Overall, Moody's central global scenario is "Hook-shaped"
for 2010 and 2011; overall we expect a sluggish recovery in most
of the world's largest economies and a gradual return to the trend growth
rate, with elevated fiscal deficits and sustained high unemployment
levels.
In addition, there is a relatively high degree of linkage of the
ratings of the notes to (i) the rating of BOS, which is also the
originator, sponsor, seller, servicer, cash manager,
account bank and expenses loan provider; and (ii) to the rating of
LTSB, which is also an originator and the delegate servicer for
this transaction.
Moody's credit-card model mainly focuses on the following seven
performance parameters: (i) the level of charge offs; (ii)
the interest rates on issued notes; (iii) servicing fees; (iv)
the size of the minimum transferor interest; (v) the portfolio yield
that is required for a credit-card issuer to break even; (vi)
the principal payment rate; and (vii) the purchase rate on the portfolio.
Charge offs, portfolio yield and the principal payment rate are
severely stressed in various trust-amortisation scenarios to determine
the expected loss and hence the required credit enhancement at the different
rating levels. In its stress-case scenarios, Moody's
analyses the effect of a sharp increase in charge-offs within the
pool. Charge-offs are stressed immediately from the estimated
steady-state level to twice their expected level, and are
assumed to continue to rise over time. Ultimately, Moody's
assumes that they will rise to a level up to four times their expected
rates. Similarly, the payment rate and yield are immediately
stressed from an expected steady-state assumption to a floor rate
that equals approximately 1/3 and 2/3 of the expected steady-state
assumption, respectively. These stressed floor rates are
maintained for the duration of the assumed early amortisation period.
The ratings address the expected loss posed to investors by the legal
final maturity date of the notes. In Moody's opinion, the
structure allows for timely payment of interest and ultimate payment of
principal for the Series 2010-2 A2 and A3 notes at par on their
rated legal final maturity date (respectively December 2014 and December
2016) and for ultimate payment of both interest and principal at par of
the Series 2010-2 C1 notes on their rated legal final maturity
date (February 2017). 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.
The principal methodology used in this rating was Moody's Approach to
Rating Credit Card Receivables-Backed Securities, published
in April 2007. In addition, Moody's publishes a weekly summary
of structured finance credit, ratings and methodologies, available
to all registered users of our website, at www.moodys.com/SFQuickCheck.
Moody's Investors Service received and took into account one or more third-party
due diligence reports on the underlying assets or financial instruments
in this transaction and the due diligence reports had a neutral impact
on the rating.
Moody's assigned provisional ratings to the transaction on 16 December
2010. For clarity, the Class A2 and A3 issuance levels are
higher than those presented at provisional rating date, but remain
in line with Moody's credit analysis.
REGULATORY DISCLOSURES
The ratings have been disclosed to the rated entity or its designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Paris
Elise Lucotte
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Milan
Alex Cataldo
Senior Vice President
Structured Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns definitive ratings to Penarth Master Issuer's UK credit-card ABS notes (2010-2 A2, A3 and C1)
