Scope Ratings GmbH (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 Sirius Funding plc on 2 October 2023. The credit ratings remain as follows:

Class A Senior Secured Floating Rate Notes due 2051: GBP 2,350m: rated AAA_SF (ISIN: XS1846709258)

Class B Mezzanine Secured Floating Rate Notes due 2051: GBP 400m: rated A+_SF (ISIN: XS2419777573)

Subordinated Notes due 2051: GBP 500m: not rated

Sirius Funding plc is a cash securitisation of a portfolio comprised of corporate loans denominated in pound sterling. The loans have been granted by Barclays Bank plc (Barclays) to its corporate borrowers in Europe and the United Kingdom. The portfolio collateralises the class A senior notes, class B mezzanine notes and subordinated notes. The transaction originally closed on 28 June 2018 and was most recently restructured on 9 December 2021. The transaction features a GBP 3.25bn portfolio and a revolving period ending in July 2027, after the most recent amendments on 19th October 2023. Prepayments will be reinvested throughout the transaction’s life and Barclays may exchange assets at its own discretion. Rules-based reinvestment criteria protect the transaction from adverse portfolio migration by ensuring eligible loans selected from Barclays’ loan book either maintain or improve the portfolio’s credit quality.

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

Scope’s review was based on the latest available investor reporting and portfolio information. As of 12 September 2023, the portfolio comprised 627 loans from 380 obligor groups.

Credit-positive

Portfolio management criteria (positive). These criteria maintain the portfolio at its current credit profile, i.e. a senior unsecured loan portfolio with a default probability aligned with BB+ and a maximum weighted average maturity date that is the earliest of: i) five years after the applicable replenishment date; and ii) the interest payment date in July 2032.

Experienced corporate lender (positive). The loans are part of the core origination activity of Barclays, whose record in domestic and international corporate lending spans more than a century, with a focus on lending to large corporates.

Overcollateralisation test (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. The Senior Par Value Test (Class A) was reported at 138.3% above the required 130.0% and the Excess Spread Reserve Test stood at 138.3% above the required 137.9% as per last reviewed investor report (July 2023).

Credit-negative

Low recovery rates (negative). The portfolio will generally comprise senior unsecured exposures, which could result in low expected recoveries upon default.

High concentration in specific industries (negative). About 34.1% of the portfolio is concentrated in four industries as per the Moody’s industrial classifications: Real Estate, Banking, Finance and Insurance. This leaves the transaction vulnerable to a downturn in these specific industries. This is mitigated by the eligibility criteria ensuring that no new senior secured real estate loans enter the portfolio, which may drive this concentration further down.

UK SME obligors (negative). About 11.9% of the portfolio consists of obligors whose default probabilities 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 10.5% of the portfolio consists of infrastructure and project finance loans. These loans have a longer weighted average life and introduce new kinds of risk into the portfolio. Although these loans have a better average quality according to Barclays’ default grade metric, Scope has capped their credit quality at a default probability aligned with BB+, given the limited information available.

The methodologies applicable for the reviewed ratings, (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023; SME ABS Rating Methodology, 16 May 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Guang Yang, Analyst

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