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Cardiff Auto Receivables Securitisation 2019-1 PLC Class B Notes Upgraded Following Review; Class A Rating Affirmed

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Cardiff Auto Receivables Securitisation 2019-1 PLC Class B Notes Upgraded Following Review; Class A Rating Affirmed

Overview

  • We have reviewed Cardiff Auto Receivables Securitisation 2019-1 PLC's performance by conducting our analysis of the transaction's underlying assets and structural features.
  • Following our review, we have raised to 'AA (sf)' from 'A (sf)' our rating on the class B notes and affirmed our 'AAA (sf)' rating on the class A notes.
  • Cardiff Auto Receivables Securitisation 2019-1 PLC is an ABS transaction of U.K. auto loans originated by Black Horse Ltd., which closed in December 2019.

LONDON (S&P Global Ratings) Aug. 25, 2021--S&P Global Ratings today raised to 'AA (sf)' from 'A (sf)' its credit rating on Cardiff Auto Receivables Securitisation 2019-1 PLC's class B notes. At the same time, we affirmed our 'AAA (sf)' rating on the class A notes.

Both our ratings on the class A and class B notes address the timely payment of interest and the ultimate payment of principal.

Today's rating actions follow our review of the transaction's performance and the application of our current criteria. They also reflect our assessment of the payment structure according to the transaction documents (see "Related Criteria").

The transaction closed in December 2019 (see "Related Research") . The pool balance had declined to £335.4 million as of the July 2021 payment date from £610.07 million at closing, bringing the current pool factor (the outstanding collateral balance as a proportion of the original collateral balance) to approximately 55%.

A combination of subordination and excess spread (if available) provide credit enhancement to the rated notes. The transaction also has a residual value top-up reserve, which was funded at closing through the subordinated loan. The residual value top-up reserve is available to cover certain losses arising from —personal contract purchase (PCP) handbacks and voluntary terminations (VTs). However, since the counterparty risk of the bank account provider holding these funds is not mitigated, we have not given any benefit to it in our analysis.

The fully sequential repayment of principal has reduced the class A notes' balance to £149.4 million from £424.0 million in December 2019, resulting in increased credit enhancement of 55.46% for this class of notes, compared with 30.50% at closing. Similarly, the available credit enhancement for the class B notes has increased to 32.73%, from 18.00% over the same period.

We have reviewed historical performance measures such as delinquencies, gross losses, and recovery rates, considering macroeconomic and industry trends. We have maintained our expected base case of defaults of 2.00% for hostile terminations (HTs) and 3.07% for VTs, and maintained a recovery rate of 38.58%, which reflect our economic outlook for the U.K.

Of the portfolio, currently 76.6% comprises residual values, which are subject to market value decline risk. We based our analysis on our view of potential market value declines at various rating levels. Our adjusted market value decline assumption is 38.33% at a 'AAA' rating level.

Table 1

Credit Assumptions
Parameter Current
Gross loss base case (%) 2.0
Gross loss multiple ('AAA') 5.0
Gross loss multiple ('AA') 4.0
Recovery rate (%) 38.58
RV loss ('AAA') (%) 38.33
RV loss ('AA') (%) 30.68
*The blended default rate is calculated by adding the large obligor defaults for a rating category as determined above to the corresponding rating-level default applied to the remaining balance of the pool. RV—Residual value.

Our operational and legal risk analysis is unchanged since closing. We consider that the transaction documents adequately mitigate the transaction's exposure to counterparty risk through the transaction bank account provider, swap counterparty and guarantor, Lloyds Bank PLC and Black Horse Ltd., up to a 'AAA' rating.

Our analysis indicates that the available credit enhancement for the class A and B notes is sufficient to withstand the credit and cash flow stresses that we apply at the 'AAA' and 'AA' rating levels, respectively.

Our credit and cash flow analysis indicates that the class B notes can attain a higher rating than that currently assigned. We have therefore raised to 'AA (sf)' from 'A (sf)' our rating on the class B notes. We have also affirmed our 'AAA (sf)' rating on the class A notes.

Cardiff Auto Receivables Securitisation 2019-1 PLC is an ABS transaction of U.K. auto loans originated by Black Horse Ltd., which closed in December 2019.

Related Criteria

Related Research

Primary Credit Analyst:Amit Einhorn, London +44 (0)20 7176 0513;
amit.einhorn@spglobal.com

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