Dowson 2020-1 PLC U.K. ABS Notes Assigned Ratings

  • Dowson 2020-1 PLC's issuance is an ABS transaction backed by U.K. auto loans originated by Oodle Financial Services Ltd.
  • We assigned our ratings to the class A, B, C, D, E-Dfrd, and X-Dfrd notes.
LONDON (S&P Global Ratings) March 24, 2020--S&P Global Ratings assigned its credit ratings to Dowson 2020-1 PLC's (Dowson) asset-backed floating-rate class A, B, C, D, E-Dfrd, and X-Dfrd notes (see list above).
The class X-Dfrd notes are uncollateralized. The proceeds from the class X-Dfrd notes are used to fund the initial required cash reserves, the premium portion of the purchase price, and pay certain issuer expenses and fees (including the cap premium).
Dowson is the second public securitization of U.K. auto loans originated by Oodle Financial Services Ltd. We also rated the first securitization, Dowson 2019-1 PLC, which closed in September 2019.
Oodle is an independent auto lender in the U.K., with a focus on used car financing for prime and near-prime customers.
The underlying collateral comprises U.K. fully amortizing fixed-rate auto loan receivables arising under hire purchase (HP) agreements granted to private borrowers resident in the U.K. for the purchase of used and new vehicles. There are no personal contract purchase (PCP) agreements in the pool. Therefore the transaction is not exposed to residual value risk.
Collections are distributed monthly with separate waterfalls for interest and principal collections, and the notes amortize fully sequentially from day one. A dedicated reserve ledger for class A, B, C, D, and E-Dfrd notes is in place to pay interest shortfalls for the respective class over the transaction's life, any senior expense shortfalls, and once the collateral balance is zero or at legal final maturity, to cure any principal deficiencies.
A combination of note subordination, the class-specific cash reserves, and any available excess spread provide credit enhancement for the rated notes. Commingling risk is partially mitigated by sweeping collections to the issuer account within two business days, and a declaration of trust is in place over funds within the collection account. However, we have considered in our cash flow analysis any unmitigated risk in the absence of downgrade language in the collection account bank agreement. We consider that the transaction is not exposed to any setoff risk because the originator is not a deposit-taking institution, has not underwritten any insurance policies for the borrowers, and there are eligibility criteria preventing loans to employees of Oodle from being in the securitization.
Oodle is the initial servicer of the portfolio. A moderate severity and portability risk along with a high disruption risk caps the potential ratings on the notes at 'A'. However, following a servicer termination event, including insolvency of the servicer, the back-up servicer, The Nostrum Group Ltd. trading as Equiniti Credit Services, will assume servicing responsibility for the portfolio. We have therefore incorporated a three-notch uplift, which caps the potential ratings on the notes at 'AA (sf)' under our operational risk criteria.
The assets pay a monthly fixed interest rate, and all notes pay compounded daily sterling overnight index average (SONIA) plus a margin subject to a floor of zero. Consequently, these classes of notes benefit from an interest rate cap provided by BNP Paribas S.A. The cap notional amount is based on a predetermined notional schedule, which amortizes in line with the expected runout schedule of the pool assuming no prepayments or defaults. The issuer is also exposed to counterparty risk through Citibank N.A., London Branch, as bank account provider. The transaction documents and remedy provisions at closing adequately mitigate counterparty risk in line with our counterparty criteria.
Interest due on the all classes of notes, other than the most senior class of notes outstanding, is deferrable under the transaction documents. Once a class becomes the most senior, interest is due on a timely basis. However, although interest can be deferred, our ratings on the class A, B, C, and D notes address timely payment of interest and ultimate payment of principal. Our ratings on the class E-Dfrd and X-Dfrd notes address the ultimate payment of interest and ultimate payment of principal.
The transaction also features a clean-up call option, whereby on any interest payment date when the outstanding principal balance of the assets is less than 10% of the initial principal balance, the seller may repurchase all receivables, provided the issuer has sufficient funds to meet all the outstanding obligations. Furthermore, the issuer may also redeem all classes of notes at their outstanding balance together with accrued interest on any interest payment date on or after September 2022.
Our ratings in this transaction are not constrained by the application of our structured finance sovereign risk criteria.
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