RPT-Fitch Assigns Penarth 2014-1 A1 & A2 Expected Ratings; Affirms Others

Mon Mar 31, 2014 7:36am EDT

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March 31 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Penarth Master Issuer plc's series 2014-1 notes, backed by UK credit card receivables originated by the Bank of Scotland plc (BoS; A/Stable/F1) and Lloyds Bank plc (Lloyds; A/Stable/F1), expected ratings as follows:

Series 2014-1 A1: 'AAA(EXP)sf'; Outlook Stable

Series 2014-1 A2: 'AAA(EXP)sf'; Outlook Stable

The final ratings on the new notes are contingent on the receipt of final documentation conforming to information already reviewed, including the issue amounts.

Fitch has also reviewed and affirmed the ratings of the six outstanding Fitch-rated tranches of the Penarth master trust programme, as follows:

GBP300m Series 2010-2 A3 affirmed at 'AAAsf'; Outlook Stable

GBP125m Series 2011-1 A2 affirmed at 'AAAsf'; Outlook Stable

USD750m Series 2013-1 A1 affirmed at 'AAAsf'; Outlook Stable

GBP1,300m Series 2013-1 A2: affirmed at 'AAAsf'; Outlook Stable

GBP200m Series 2010 B1 affirmed at 'AAsf'; Outlook Stable

GBP330m Series 2010-2 B1 affirmed at 'AAsf'; Outlook Stable

KEY RATING DRIVERS

Firm Asset Performance

Fitch's base case charge-off expectation remains unchanged at 7.5% for the Penarth trust, which is at the midpoint of the range of 4.5% to 10% assigned in similar transactions. The agency's base case assumptions for the trust's monthly payment rate (18%) and yield rate (16%) also remain unchanged since the most recent performance review in November 2013.

Originator Linkage

Due to the revolving nature of the underlying assets, relative to the amortising receivables, asset performance is closely linked to the performance of the originator. Fitch conducted an annual review of the underwriting and servicing processes at BoS and Lloyds in December 2013 and found both the policies and procedures satisfactory, as were implementation and controls.

Interchange Cap Impact

Fitch has expected regulatory pressure on interchange fees for some time and therefore the agency has not given full credit to interchange revenue when setting its base case yield assumption, as denoted in the Credit Card ABS Rating Criteria and in previous reports. Further EU regulation is expected to reduce the cap on interchange fees to 0.3% (the current UK level is 0.9%) of transacted amounts and is due to come into force from 3Q15 in the UK. No additional yield stress was applied in the analysis, as the impact of the cap will also depend on any second-order effects on cardholder composition, payment behaviour and any countermeasures originators might implement. Fitch will continue to assess any downward pressure on yield as a result of regulatory and competitive forces.

Stable Asset Outlook

The performance for credit card trusts continued to improve throughout 4Q13, with charge-off, delinquency and payment rates improving, while yield rates were stable over the same period.

Fitch revised up its GDP forecast to 2.5% for 2014 and 2015 from 2.3% for both years in the December Global Economic Outlook. The agency believes annual UK unemployment rates for 2014 and 2015 will continue to drop from their current level of 7.2% (December 2013), to 6.9% and 6.5%, respectively. Fitch therefore maintains its stable outlook for UK credit card trusts throughout 2014.

RATING SENSITIVITIES

Rating sensitivity to increased charge-off rate

Current rating (base case: 7.5%): 'AAAsf'

Increase base case by 25%: 'AA+sf'

Increase base case by 50%: 'AAsf'

Increase base case by 75%: 'AA-sf'

Rating sensitivity to reduced MPR

Current rating (base case: 18%): 'AAAsf'

Reduce base case by 10%: 'AA+sf'

Reduce base case by 25%: 'AA+sf'

Reduce base case by 50%: 'Asf'

Rating sensitivity to reduced purchase rate (ie aggregate new purchases divided by aggregate principal repayments in a given month)

Current rating (base case: 100%): 'AAAsf'

Reduce base case by 50%: 'AA+sf'

Reduce base case by 75%: 'AA+sf'

Reduce base case by 100%: 'A+sf'

Rating sensitivity to increased charge-off rate and reduced MPR Current rating: 'AAAsf'

Increase charge-off rate by 25% and reduce MPR by 15%: 'AA+sf'

Increase charge-off rate by 50% and reduce MPR by 25%: 'A+sf'

Increase charge-off rate by 75% and reduce MPR by 50%: 'BBBsf'

Link to Fitch Ratings' Report: Penarth Master Issuer plc: 2014-1 A1 and A2 Delinked Notes

here

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