ֳ

Rating Action Commentary

ֳ Rates NewDay Funding's Series 2018-2

Tue 06 Nov, 2018 - 11:05 AM ET

Link to ֳ' Report(s): NewDay Funding 2018-2 Plc - Appendix
NewDay Funding 2018-2 Plc

ֳ-Milan/London-06 November 2018: ֳ has assigned NewDay Funding's Series 2018-2 notes final ratings as follows:

USD150.0 million Series 2018-2 A1: 'AAAsf'; Outlook Stable
GPB33.3 million Series 2018-2 A2: 'AAAsf'; Outlook Stable
GBP23.1 million Series 2018-2 B: 'AAsf'; Outlook Stable
GBP33.9 million Series 2018-2 C: 'Asf'; Outlook Stable
GBP42.3 million Series 2018-2 D: 'BBBsf'; Outlook Stable
GBP23.7 million Series 2018-2 E: 'BBsf'; Outlook Stable
GBP19.8 million Series 2018-2 F: 'Bsf'; Outlook Stable

ֳ has simultaneously affirmed Series 2018-1, Series 2017-1, Series 2016-1, Series 2015-2, Series VFN-F1 V1 and Series VFN-F1 V2. A full list of rating actions is at the end of this rating action commentary.

The notes issued by NewDay Funding 2018-2 plc are collateralised by a pool of non-prime UK credit card receivables.

KEY RATING DRIVERS
Non-Prime Asset Pool
The charge-off and payment rate performance of the portfolio differs from that of other rated UK credit card trusts, due to the non-prime nature of the underlying assets. ֳ assumes a steady state charge-off rate of 18%, with a stress on the lower end of the spectrum (3.5x for 'AAAsf'), considering the high absolute level of the steady state assumption and lower historical volatility in charge-offs. We applied a steady state payment rate assumption of 10%, with a median level of stress (45% at 'AAAsf').

Changing Pool Composition
The portfolio consists of an open book and a closed book, which have displayed different historical performance trends. Overall pool performance is expected to migrate towards the performance of the open book as the closed book amortises. This has been incorporated into ֳ's steady-state asset assumptions.

Variable Funding Notes Add Flexibility
In addition to Series VFN-F1 providing the funding flexibility that is typical and necessary for credit card trusts, the structure employs a separate Originator VFN, purchased and held by NewDay Funding Transferor Ltd (the transferor). It provides credit enhancement to the rated notes, adds protection against dilution by way of a separate functional transferor interest, and meets the EU and US risk retention requirements.

Key Counterparties Unrated
The NewDay Group will act in several capacities through its various entities, most prominently as originator, servicer and cash manager to the securitisation. In most other UK trusts, these roles are fulfilled by large institutions with strong credit profiles. The degree of reliance is mitigated in this transaction by the transferability of operations, agreements with established card service providers, a back-up cash management agreement and a series-specific liquidity reserve.

Stable Asset Outlook
ֳ maintains its stable sector outlook, as performance remains benign and any potential deterioration would remain fully consistent with the steady-state assumptions for UK credit card trusts.

Weak real wage growth and changes to the benign unemployment levels in the UK would put the repayment ability of borrowers under pressure in the near future. However, receivables performance did not deteriorate during the most recent multi-year period of negative real wage growth, most likely due to the robust labour market during that period. ֳ's expectation for UK unemployment supports the stable rating outlook for credit card trusts.

RATING SENSITIVITIES
Rating sensitivity to increased charge-off rate
Increase base case by 25% / 50% / 75%
Series 2018-2 A: 'AAsf' / 'AA-sf' / 'A+sf'
Series 2018-2 B: 'A+sf' / 'Asf' / 'BBB+sf'
Series 2018-2 C: 'BBB+sf' / 'BBBsf' / 'BBB-sf'
Series 2018-2 D: 'BB+sf' / 'BBsf' / 'B+sf'
Series 2018-2 E: 'B+sf' / 'Bsf' / NA
Series 2018-2 F: NA / NA / NA

Rating sensitivity to reduced Monthly Payment Rate (MPR)
Reduce base case by 15% / 25% / 35%
Series 2018-2 A: 'AAsf' / 'AA-sf' / 'Asf'
Series 2018-2 B: 'A+sf' / 'Asf' / 'A-sf'
Series 2018-2 C: 'BBB+sf' / 'BBBsf' / 'BBB-sf'
Series 2018-2 D: 'BBB-sf' / 'BB+sf' / 'BBsf'
Series 2018-2 E: 'BB-sf' / 'B+sf' / 'B+sf'
Series 2018-2 F: NA / NA / NA

Rating sensitivity to reduced purchase rate (ie aggregate new purchases divided by aggregate principal repayments in a given month)
Reduce base case by 50% / 75% / 100%
Series 2018-2 D: 'BBB-sf' / 'BBB-sf' / 'BBB-sf'
Series 2018-2 E: 'BB-sf' / 'BB-sf' / 'B+sf'
Series 2018-2 F: NA / NA / NA
No rating sensitivities are shown for class A to C, as ֳ is already assuming a 100% purchase rate stress in these rating scenarios

Rating sensitivity to increased charge-off rate and reduced MPR
Increase base case charge-offs by 25% and reduce MPR by 15% / Increase base case charge-offs by 50% and reduce MPR by 25% / Increase base case charge-offs by 75% and reduce MPR by 35%
Series 2018-2 A: 'A+sf' / 'A-sf' / 'BBB-sf'
Series 2018-2 B: 'A-sf' / 'BBBsf' / 'BB+sf'
Series 2018-2 C: 'BBBsf' / 'BB+sf' / 'BB-sf'
Series 2018-2 D: 'BBsf' / 'B+sf' / NA
Series 2018-2 E: 'Bsf' / NA / NA
Series 2018-2 F: NA / NA / NA

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
ֳ was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Deloitte LLP. The third-party due diligence described in Form 15E focused on observing and comparing specific loan level data contained in a sample of credit card receivables. ֳ considered this information in its analysis and it did not have an effect on ֳ's analysis or conclusions.

DATA ADEQUACY
ֳ has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transactions. There were no findings that affected the rating analysis.

ֳ reviewed the results of a third party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.

ֳ conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, ֳ's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Transaction reporting provided by NewDay Cards Ltd as at September 2018
- Historical dynamic pool performance data provided by NewDay Ltd as at September 2018

MODELS
The model below was used in the analysis. Click on the link for a description of the model.

Global Credit Card Cash Flow Model

REPRESENTATIONS AND WARRANTIES
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those ֳ considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016

ֳ has simultaneously affirmed the following ratings:

GBP175 million Series VFN-F1 V1 Class A: 'BBBsf'; Outlook Stable
GBP15.7 million Series VFN-F1 V1 Class E: 'BBsf'; Outlook Stable
GBP13.6 million Series VFN-F V1 Class F: 'Bsf'; Outlook Stable

GBP195.6 million Series VFN-F1 V2 Class A: 'AAAsf'; Outlook Stable
GBP28.4 million Series VFN-F1 V2 Class B: 'AAsf'; Outlook Stable
GBP42.5 million Series VFN-F1 V2 Class C: 'Asf'; Outlook Stable
GBP58.5 million Series VFN-F1 V2 Class D: 'BBBsf'; Outlook Stable
GBP30 million Series VFN-F1 V2 Class E: 'BBsf'; Outlook Stable
GBP25.7 million Series VFN-F1 V2 Class F: 'Bsf'; Outlook Stable

USD93.0 million Series 2018-1 Class A1: 'AAAsf'; Outlook Stable
GBP100.0 million Series 2018-1 Class A2: 'AAAsf'; Outlook Stable
GBP26.2 million Series 2018-1 Class B: 'AAsf'; Outlook Stable
GBP38.8 million Series 2018-1 Class C: 'Asf'; Outlook Stable
GBP48.3 million Series 2018-1 Class D: 'BBBsf'; Outlook Stable
GBP26.2 million Series 2018-1 Class E: 'BBsf'; Outlook Stable
GBP22.4 million Series 2018-1 Class F: 'Bsf'; Outlook Stable

GBP125 million Series 2017-1 Class A: 'AAAsf'; Outlook Stable
GBP19.3 million Series 2017-1 Class B: 'AAsf'; Outlook Stable
GBP28.3 million Series 2017-1 Class C: 'Asf'; Outlook Stable
GBP35.5 million Series 2017-1 Class D: 'BBBsf'; Outlook Stable
GBP19.8 million Series 2017-1 Class E: 'BBsf'; Outlook Stable
GBP16.5 million Series 2017-1 Class F: 'Bsf'; Outlook Stable

GBP129.3 million Series 2016-1 Class A: 'AAAsf'; Outlook Stable
GBP18.8 million Series 2016-1 Class B: 'AAsf'; Outlook Stable
GBP27.8 million Series 2016-1 Class C: 'Asf'; Outlook Stable
GBP37.9 million Series 2016-1 Class D: 'BBBsf'; Outlook Stable
GBP20.1 million Series 2016-1 Class E: 'BBsf'; Outlook Stable
GBP13.8 million Series 2016-1 Class F: 'B+sf'; Outlook Stable

GBP146.7 million Series 2015-2 Class A: 'AAAsf'; Outlook Stable
GBP21.3 million Series 2015-2 Class B: 'AAsf'; Outlook Stable
GBP31.5 million Series 2015-2 Class C: 'Asf'; Outlook Stable
GBP44.1 million Series 2015-2 Class D: 'BBBsf'; Outlook Stable
GBP22.8 million Series 2015-2 Class E: 'BBsf'; Outlook Stable
GBP15.6 million Series 2015-2 Class F: 'B+sf'; Outlook Stable

Contacts:
Primary Analyst
Nicola Selvaggi
Analyst
+39 02 87 90 87 207
ֳ Italia S.p.A.
Ingresso Via Privata Maria Teresa, 8
20123 Milan

Secondary Analyst
Katerina Pavlopoulou
Associate Director
+44 20 3530 1228

Committee Chairperson
Joanne Wong
Senior Director
+44 20 3530 1077

Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: athos.larkou@thefitchgroup.com

Additional information is available on
Applicable Criteria
Credit Card ABS Rating Criteria - Effective May 18, 2018 to May 15, 2019 (pub. 18 May 2018)
ֳ's Interest Rate Stress Assumptions for Structured Finance and Covered Bonds - Excel File - Effective from 2 February 2018 to 7 March 2019 (pub. 02 Feb 2018)
Global Structured Finance Rating Criteria - Effective from 15 May 2018 to 2 May 2019 (pub. 15 May 2018)
Structured Finance and Covered Bonds Counterparty Rating Criteria - Effective from 1 August 2018 to 18 April 2019 (pub. 01 Aug 2018)
Structured Finance and Covered Bonds Counterparty Rating Criteria: Derivative Addendum - Effective from 1 August 2018 to 18 April 2019 (pub. 01 Aug 2018)
Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 23 Oct 2018)
Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria - Effective from 2 February 2018 to 7 March 2019 (pub. 02 Feb 2018)

Related Research
NewDay Funding 2018-2 Plc - Appendix

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
Solicitation Status
Endorsement Policy

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The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

Solicitation Status

The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

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