Approximately GBP [190] million equivalent of securities rated
London, 12 April 2011 -- Moody's Investors Service has assigned the following provisional ratings
to asset-backed notes (Series 2011-3) issued by Gracechurch
Card Programme Funding PLC (the "Issuer"):
- (P)Aaa (sf) to the EUR [100]m Series 2011-3 Class
A1 Floating Rate Asset-Backed Notes due 20[16]
- (P)Aaa (sf) to the GBP [100]m Series 2011-3 Class
A2 Floating Rate Asset-Backed Notes due 20[16]
Series 2011-3 is the sixth issuance of Gracechurch Card Programme
Funding PLC under its medium-term note programme and the 18th transaction
to be ultimately backed by credit card receivables from Barclays Bank
PLC's Gracechurch Receivables Trust. The assets backing the Notes
are receivables arising under designated MasterCard and Visa revolving
credit card accounts originated or acquired in the UK by Barclaycard,
a business unit of Barclays Bank PLC.
Moody's issues provisional ratings in advance of the final sale of securities
and the above rating reflects Moody's preliminary credit opinions regarding
the transaction only. Upon a conclusive review of the final documentation
and the final note structure, Moody's will endeavour to assign a
definitive rating to the above notes. A definitive rating may differ
from a provisional rating.
RATINGS RATIONALE
The ratings of the Class A1 and A2 Notes are based upon (i) the credit
quality of the portfolio; (ii) the credit enhancement level of 15.0%
provided by the Series 2011-3 Class D notes (unrated) as protection
against losses; (iii) the excess spread available to the transaction;
(iv) the expertise of Barclaycard as one of the leading originators and
servicers of credit card receivables in the UK; (v) the structural
and legal integrity of the transaction; and (vi) the strong credit
quality of Barclays Bank PLC (Aa3/Prime-1) in its role as servicer
and trust cash manager.
Moody's notes that there is no specific mechanism in the structure providing
liquidity to pay interest on the Class A1 and A2 Notes throughout the
life of the transaction in the event of any collections shortfall.
All other parameters remaining constant, a downgrade of Barclays
Bank PLC's long-term rating could negatively impact the initial
rating on the Class A1 and A2 Notes. The highest ratings on the
other outstanding notes issued and ultimately backed by the Gracechurch
cards trust would be similarly impacted.
The transaction uses the existing receivables trust structure which was
set up in November 1999. Barclaycard has assigned all receivables
that had arisen or would arise in the accounts originated under certain
designated product lines to the receivables trustee. The transaction
involves a two step debt issuance: the proceeds of the rated Notes
sold to investors finance the Issuer's purchase of limited recourse medium
term note certificates, with the MTN issuer in turn using the cash
to acquire an undivided beneficial interest in the receivables trust.
Interest will be paid monthly to the Notes in order of seniority from
collections received by the Receivables Trustee. The structure
envisions that, subject to specific criteria and triggers,
up until a pre defined date, 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 this
date, principal collections may be accumulated for a period of up
to 12 months for noteholders in order to redeem the Notes at the scheduled
maturity date. If the Notes are not fully repaid on the scheduled
maturity date, a rapid amortisation trigger will be breached.
The Notes have a final redemption date in [2016].
Barclaycard currently services the receivables in the receivables trust.
Moody's has recently reviewed the servicing operations of Barclaycard
and is comfortable that Barclaycard is well placed to fulfil its obligations
in relation to servicing of the receivables. The minimum transferor
interest floor is set at 5% to insure against dilution, fraud
or attrition.
Moody's has been monitoring the performances of the Gracechurch cards
trust since its inception. For an overview of the performance of
Gracechurch and the other UK credit card trusts, see Moody's quarterly
report UK Credit Card Indices.
Barclays offers repayment plan to certain customers experiencing financial
difficulties, which, in Moody's opinion, may result
in an artificial lowering of delinquency and charge-off rates and
a distortion of the performance-related ratios.
On 2nd November 2010, Barclaycard repurchased over GBD639million
worth of receivables relating to accounts in debt management from the
Receivables Trustee, thereby clearing the trust of any repayment
plan accounts. Moody's will continue to monitor the size
of repayment plans as a percentage of the total trust balance going forward.
Moody's had previously taken the issue of debt repayment plans into
consideration in its analysis by considering a charge-off rate
of up to 2.0% above the reported charge-off rate
as reflecting the true performance of the trust. Moody's
will consider the impact of Barclay's recent repurchase on the charge-off
rate assumption and may make appropriate adjustments if necessary,
mainly to consider if the level of debt repayment plans is under control
going forward. As of February 2011, the percentage of trust
receivables currently in repayment plans stands at approximately 1.1%
.
Moody's expects performance in the range of 8.0% to 10.0%
for charge-offs (see above), 16.0% to 18.0%
for yield and 15.5% to 17.5% for the 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 the given range may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated when the related
securities were rated. 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 is dependent on an assessment of a range
of factors including, but not exclusively, the performance
metrics.
Primary sources of assumption uncertainty are 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 central global scenario remains "Hook-shaped"
for 2010 and 2011; we expect overall sluggish recovery in most of
the world largest economies, returning to trend growth rate with
elevated fiscal deficits and persistent unemployment levels.
In addition, there is a relatively high degree of linkage of the
rating of the Notes to the rating of Barclays Bank PLC, also acting
as sponsor, seller, servicer, cash manager, swap
counterparty, account bank and expenses loan provider.
The principal methodology used in rating the Notes was Moody's Approach
to Rating Credit Card Receivables-Backed Securities rating methodology,
published in April 2007.
The Volatility Score ("V Score") for this transaction is Medium,
which is in line with the V score assigned for the UK Credit Card ABS
sector. On February 22, 2011, Moody's published a report
introducing V Scores and Parameter Sensitivities for the UK credit card
ABS sector. Moody's V Scores provide a relative assessment of the
quality of available credit information and the potential variability
around the various inputs to a rating determination. V Scores are
intended to rank transactions by the potential for significant rating
changes owing to uncertainty around the assumptions due to data quality,
historical performance, the level of disclosure, transaction
complexity, the modeling and the transaction governance that underlie
the ratings. V Scores apply to the entire transaction (rather than
individual tranches).
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. The analysis assumes that the deal has
not aged. It is not intended to measure how the rating of the security
might migrate over time, but rather how the initial rating of the
security might differ as certain key parameters vary. In rating
UK Credit Card ABS, the payment rate, charge-off rate,
purchase rate, yield and certain other inputs are used to calculate
the median expected loss and the Aaa enhancement. These two,
in turn, are the inputs used to determine a new lognormal loss distribution.
Two new lognormal loss distributions were calculated for each rating class
by assuming the following two payment and gross charge-off rate
combinations: (1) 14%/11% and (2) 11%/14%
from the base case of 17%/8%. The quantitative/model-indicated
Parameter Sensitivities for the notes under these three additional scenarios
are: For both Class A Notes, one notch (i.e.
Aaa to Aa1) and two notches, respectively.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
in this transaction.
Moody's credit card model mainly focuses on the following performance
parameters: (1) level of charge offs; (2) interest rates on
the Notes issued; (3) servicing fees; (4) size of the minimum
transferor interest; (5) the portfolio yield which is required for
a credit card issuer to break even; (6) the principal payment rate;
and (7) the purchase rate on the portfolio. Charge offs,
portfolio yield and 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 cases, Moody's analyzes the effect of a sharp increase
in charge-offs on the pool. Charge-offs are stressed
immediately from the estimated steady state level to twice their expected
level, and assumed to continue to rise over time. Ultimately
they are assumed to 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 which 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 amortization 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 at par on or before their rated legal final maturity date.
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.
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.
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.
London
Ning Loh
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
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 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 provisional ratings to ABS (Series 2011-3) issued by Gracechurch Card Programme Funding PLC
