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      FRIDAY, 24/06/2022 - Scope Ratings UK Ltd
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      Scope has completed a monitoring review of ratings on Heta Funding DAC

      No action has been taken following the monitoring review.

      Scope Ratings UK Limited (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for the following notes issued by Heta Funding DAC on 20 June 2022.

      Class A-1 Senior Secured Floating Rate Notes due 2051 (ISIN XS0472601912), GBP 2,900m: AAASF

      Class A-2 Senior Secured Floating Rate Notes due 2051 (ISIN XS1881860339), GBP 2,900m: AAASF

      Class B-1 Mezzanine Secured Floating Rate Notes due 2051 (ISIN XS1881859836), GBP 480m: AASF

      Class B-2 Mezzanine Secured Floating Rate Notes due 2051 (ISIN XS1881860172), GBP 480m: AASF

      Class C Notes due 2051, GBP 1,240m: not rated

      Heta Funding Designated Activity Company is a cash securitisation of a portfolio of mainly corporate loans denominated in pound sterling (GBP). The loans were granted by Barclays Bank PLC (Barclays) to its UK borrowers. The portfolio collateralises two pari passu senior notes (classes A-1 and A-2), two pari passu mezzanine notes (classes B-1 and B-2), and the class C notes. The transaction originally closed on 11 August 2010 and was restructured on 10 August 2020 and 29 July 2021.

      This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

      Key rating factors

      The class A-1/A-2 and B-1/B-2 notes continue to benefit from 27.5% and 15.5% subordination, respectively, and are protected by overcollateralisation tests.

      Scope’s review was based on the latest available investor reporting and portfolio information. As of 29 April 2022, the portfolio comprised 1878 loans from 1302 obligors. The average default risk of the portfolio is commensurate with a BB rating, based on mapping between Barclays’ default grades of loans in the portfolio and Scope’s ratings.

      Credit-positive (+)

      Transaction performance (positive). There has been no default recorded or no reduction in the portfolio balance. It currently stands at an aggregate GBP 8,000m equivalent, the same level as at last restructuring date of July 2021.

      Portfolio management criteria (positive). These criteria maintain the portfolio at its current credit profile, i.e. a senior unsecured loan portfolio with a BB to BB+ rating (probability of default measure), a maximum weighted average maturity date of: i) the date that is five years after the applicable replenishment date; or ii) May 2028.

      Overcollateralisation tests (positive). The overcollateralisation and minimum excess spread reserve tests help to maintain proper collateralisation on the notes with performing collateral. Upon a breach of the overcollateralisation test, principal and interest proceeds from the portfolio are diverted to repay the senior notes. Upon a breach of the excess spread reserve test, interest proceeds are reinvested in eligible collateral.

      Credit-negative (-)

      Low recovery rates (negative). The portfolio will generally comprise senior unsecured exposures, which results in low expected recoveries upon default. The drift of the portfolio composition towards the senior unsecured segment was observed in this monitoring and was anticipated at last restructuring in July 2021.

      UK SME obligors (negative). Increased proportion of SME obligors. About 16.1% (July 2021: 13.4%) of the portfolio consists of obligors whose default grades were derived using Barclays’ rating models specific to UK small and medium enterprises. These obligors are usually more susceptible to economic downturns and have lower recoveries upon default.

      Infrastructure and project finance loans (negative). About 8.6% of the portfolio consists of infrastructure and project finance loans. These loans have a longer weighted average life and introduce risks which are different in nature to the rest of the portfolio, which comprises corporate exposures. Although these loans have a better average quality according to Barclays’ default grade metric, Scope has capped their credit quality at BB+, given the limited information available.

      The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 17 December 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021; SME ABS Rating Methodology, 16 May 2022) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, SW1W 0AU, +44 207 8245180.
      Lead analyst Mark Vrdoljak, Associate Director

      Potential conflicts
      See www.scoperatings.com under Governance & Policies/UK Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings. One of the General Managers of Scope Ratings, who joined the organisation on 1 December 2021, has a significant relationship with an affiliate of Deutsche Bank AG, a related third party to this transaction.

      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH, Scope ESG Analysis GmbH and Scope Hamburg GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.
       

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