(Repeat for additional subscribers)
June 6 (The following statement was released by the rating agency)
Fitch Ratings has assigned Delamare Master Issuer plc's
series 2014-1 notes, backed by UK credit card receivables originated by Tesco
Personal Finance plc (TPF), final ratings as follows:
GBP150m Series 2014-1 A1: 'AAAsf'; Outlook Stable
GBP350m Series 2014-1 A2: 'AAAsf'; Outlook Stable
Fitch has also affirmed the four outstanding Fitch-rated tranches of the
Delamare master trust programme, as follows:
GBP400m Series 2013-1 A1: 'AAAsf'; Outlook Stable
GBP300m Series 2013-1 A2: 'AAAsf'; Outlook Stable
GBP300m Series 2013-1 A3: 'AAAsf'; Outlook Stable
GBP300m Series 2013-1 A4: 'AAAsf'; Outlook Stable
KEY RATING DRIVERS
Sound Asset Performance
The charge-off and payment rate performance of the Delamare pool has
historically been better than Fitch's base case assumptions of 5% and 40%,
respectively. Fitch has maintained the charge-off base case at 5% but revised
the payment rate base case downward to 35% from 40% to account for recent
declines and expected further deterioration in payment rates following additions
to the receivables pool.
Shift in Portfolio Composition
New accounts originated since 2013 were added to the trust in March 2014 and
more were designated at closing of the 2014-1 series. These accounts have a
relatively higher outstanding balance per account and include balance transfers.
They therefore slightly increase the trust's risk profile. Fitch does not
consider the change material enough to warrant an adjustment to the charge-off
base case and has maintained it at 5.0%.
Interchange Cap Impact
Fitch expects regulatory pressure on interchange fees and therefore has not
given full credit to interchange revenue when setting its base case yield
assumption (as per its Global Credit Card ABS Rating Criteria). Further EU
regulation is expected to reduce the cap on interchange fees to 0.3% (the
current UK level is 0.9%) of the transacted amount and this is expected to come
into force within the next two years in the UK. Delamare's high payment rate and
low charge-off rates make the portfolio more dependent on interchange fees than
its competitors. Fitch factored this in when setting the steady state portfolio
Class D Variable Funding Note
The series 2013-1 D note, which was retained by the seller, has been replaced by
the series 2014-1 D note, issued as a variable funding note (VFN). This provides
subordination to all senior classes of notes. The class D principal amount may
vary after closing, subject to satisfaction of issuance and repayment tests,
which include required subordination and minimum seller share conditions.
Replacing the fixed amount series 2013-1 D with the VFN will provide operational
flexibility to the programme when a senior class is issued or redeemed.
Importance of Reward Scheme
The strong payment and purchase rates of the Delamare trust are driven by Tesco
Clubcard points-based loyalty scheme. This makes the performance of the
portfolio dependent on the continuity and attractiveness of the rewarding
Steady Asset Outlook
The performance of credit card trusts continued to improve throughout 1Q14, with
delinquency and payment rates improving, while charge-off and yield rates were
stable over the same period.
Fitch believes UK credit card performance will remain fairly stable, with only
limited rises in delinquencies and charge-offs towards 2015. Fitch forecasts
annual UK unemployment rates for 2014 and 2015 to decline slightly to 6.9% and
6.5%, respectively. Unemployment is the key factor that determines consumers'
ability to meet payments on their credit agreements. Fitch therefore maintains
its stable outlook for the sector.
Rating sensitivity to increased charge-off rate
Current rating (base case: 5%): 'AAAsf'
Increase base case by 25%: 'AA+sf'
Increase base case by 50%: 'AA+sf'
Increase base case by 75%: 'AA-sf'
Rating sensitivity to reduced monthly payment rate (MPR)
Current rating (base case: 35%): 'AAAsf'
Reduce base case by 10%: 'AAAsf'
Reduce base case by 25%: 'AA+sf'
Reduce base case by 50%: 'AA+sf'
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%: 'AAAsf'
Reduce base case by 75%: 'AAAsf'
Reduce base case by 100%: 'AA+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%: 'AA-sf'
Increase charge-off rate by 75% and reduce MPR by 50%: 'Asf'
Key Rating Drivers & Rating Sensitivities are further described in the new issue
report, dated 06 June 2014 available at www.fitchratings.com.
Link to Fitch Ratings' Report: Delamare Cards MTN Issuer PLC - 2014-1 Delinked