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 Shelby Real Estate Funding Limited including the current ratings on 10 November 2023.

The credit ratings remain as follows:

Class A notes (ISIN XS2537092350): GBP 2,450.0m: AAA_SF

Class B notes (ISIN XS2537093838): GBP 525.0m: AA-_SF

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

Credit enhancement (positive). The rated class A and B notes benefit from credit support of respectively 30% and 15% provided by the notes’ subordination.

Excess spread reserve test (positive). This curable test, which is only applicable during the reinvestment period, helps to maintain the proper collateralisation of the class A notes with non-defaulted collateral. Upon a breach of the test, any excess of issuer interest funds after class B interest will be redirected into the issuer principal account for the purchase of new assets.

Liquidity protection (positive). A non-amortising liquidity facility mitigates liquidity risk in the event of a collateral management disruption. Further mitigation comes from the possible redirection of issuer principal funds to cover any interest shortfall related to senior costs and class A and B notes interest due.

Low loan-to-value level (positive). The current pool weighted average loan-to-value ratio (43.8%) provides noteholders adequate protection against a possible market value downturn.

Granular CRE portfolio (positive). The CRE mortgage loan portfolio consists of more than 100 loans, which protects the portfolio’s performance against idiosyncratic borrower credit risk and ensures stable cash flows.

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

Portfolio refinancing risk (negative). All commercial real estate loans are exposed to refinancing risk, which will be further aggravated if interest rates continue to rise.

Pool concentration to the UK (negative). The portfolio is entirely located in the UK, increasing the transaction’s concentration risk to the UK economy and to its property market value. We believe this risk is mitigated to a degree due to the pool’s low LTV and the UK’s large, wealthy and diversified economy, reflected in the sovereign’s rating of AA/Stable by Scope.

Credit risk profile migration (negative). Under certain conditions the transaction could be revolving for up to two years. Associated risks related to the replenishment of new loans are mitigated mostly through eligibility criteria, portfolio profile tests, collateral quality tests, an excess spread reserve test and stop reinvestment triggers. All are designed to ensure a minimum portfolio credit quality at the start of the amortisation phase.

Counterparty concentration risk (negative). Barclays performs numerous transaction roles such as originator, collateral manager, liquidity facility provider, vendor, vendor trustee, servicer collection account bank, initial purchaser and retention holder. This risk is mostly mitigated by Barclays’ credit quality and, in terms of its material role as liquidity facility provider, by the downgrade and replacement language upon loss of a BBB or S-2 rating within 30 calendar days.

The methodologies applicable for the reviewed ratings (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 2023; CRE Loan and CMBS Rating Methodology, 3 November 2023) 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 Adam Plajner, Associate Director

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