Nov 27 - Fitch Ratings has assigned Invicta Funding Limited's variable
funding notes backed by UK non-prime credit card receivables a final rating, as
GBP400.0m class A notes, due November 2019: 'Asf'; Outlook Stable
The final rating is based on Fitch's assessment of the origination and servicing
procedures of SAV Credit (the originator, seller, and servicer), the agency's
expectations of future asset performance, the available credit enhancement, and
the transaction's legal structure.
The issuance proceeds were used to purchase three portfolios of non-prime UK
credit card receivables (two closed book legacy portfolios and one acquiring
pool). The acquiring pool receivables were originated by SAV Credit.
The available data in relation to the legacy pools was somewhat limited and the
future performance is dependent on increasing origination plans for the
acquiring pool by the originator. In addition, the historical asset performance
is not in line with prime card performance typically observed with UK credit
card trusts. In Fitch's view, these issues are mitigated by the available credit
enhancement and the servicing arrangements, which are sufficient to support a
Due to the revolving nature of the underlying assets, performance will be
influenced by the ongoing monitoring, risk management and repricing actions of
the servicer and originator. Fitch's asset analysis addresses much of the risk
of performance deterioration by applying stresses to performance parameters,
performance may still be impacted by the deterioration of the
originator's/servicer's financial profile.
SAV acts as servicer for the transaction. However, the initial operational
functions are carried out via subservicing agreements with Bank of Scotland
('A'/Stable/'F1'; Lloyds Banking Group (LBG)). During the life of the
transaction, these operational functions are intended to be migrated to a First
Data platform, with LBG continuing to carry out the commercial processes. Fitch
gained comfort in assigning the ratings and mitigating liquidity and servicing
disruption risk from a number of factors, including structural features (a
liquidity reserve will be topped up via excess spread upon portfolio performance
deterioration and also upon weakening servicer corporate performance
deterioration), the fact that initial collections are brought into accounts held
with rated entities with a daily sweep to issuer collection accounts, and also
documentation in place outlining the responsibility of each party throughout
each stage of the migration process.
Charge-off and payment rate performance of the pools reflect the non-prime
nature of the assets which is is mitigated by the available credit enhancement.
Fitch has set a base case charge-off assumption of 18% with a stress on the
lower end of the spectrum due to the high steady state base case rate (2.25x for
'Asf'). A yield base case of 30% was applied with a stress also on the lower end
of the spectrum (25% for 'Asf'). A payment rate base case of 7.5% was applied.
Unlike most Fitch-rated UK credit card transactions, the agency applied a
declining payment rate stress pattern ending in a payment rate of 3.5% to mimic
a run-down of the portfolio where most cardholders only make their minimum
required payment. Given the specific nature of the underlying receivables, the
performance is not directly comparable with prime UK credit card transactions.
Fitch's rating reflects timely payment of interest and ultimate repayment of
principal for the senior notes. At closing, the interest on 75% of the notes
will be based on one-month LIBOR and the interest on 25% of the notes references
the relevant noteholder's CP funding costs. Interest payable in relation to the
notes based on CP is capped at Libor + 50bp. Any further funding costs are
payable junior in the structure. Fitch's rating does not reflect payment of
these junior excess funding costs.
The notes are structured to enable variable funding, whereby the notes will be
deleveraged or increased in line with the borrowing base to ensure that a
minimum advance rate is maintained. The class A notes benefit from initial
credit enhancement of 40% (a 60% advance rate). Fitch gained comfort in relation
to potential risk from dilutions due to the fact that potential increases in
dilutions (for example relating to principal payment insurance and cashback
schemes) will be incorporated into the advance rate and credit enhancement for
Fitch reviewed a 99:1 Agreed Upon Procedures report regarding the data provided
by the arranger. An internationally recognised accounting firm conducted the
report which included a review of 459 loan files. Fitch believes the sample size
and the lack of material error findings suggest the originator provided an
acceptable quality of data. As a result, Fitch made no adjustments to its
analysis with respect to the data provided.
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Sources of information: data provided by the originator (SAV Credit).
Applicable criteria: 'Global Credit Card ABS Rating Criteria', dated 22 June
2012, 'Counterparty Criteria for Structured Finance Transactions', dated 12
March 2012, "Global Structured Finance Rating Criteria", dated 6 June 2012 are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Counterparty Criteria for Structured Finance Transactions
Global Credit Card ABS Rating Criteria
Global Structured Finance Rating Criteria