Bumper UK 2021-1 Finance plc — Moody’s assigns provisional Aaa (sf) to Bumper UK 2021-1 Finance plc Auto ABS

Rating Action: Moody’s assigns provisional Aaa (sf) to Bumper UK 2021-1 Finance plc Auto ABSGlobal Credit Research – 22 Feb 2021GBP [] million ABS Notes provisionally rated, relating to a portfolio of UK auto lease receivables, final balloon payments and RV cash flowsLondon, 22 February 2021 — Moody’s Investors Service (« Moody’s ») has assigned the following provisional rating to Notes to be issued by Bumper UK 2021-1 Finance plc:….GBP []M Class A Asset Backed Floating Rate Notes due December 2030, Provisional Rating Assigned (P) Aaa (sf)Moody’s has not assigned a rating to the subordinated GBP []M Class B Asset Backed Notes due December 2030The Notes are backed by a 12-month revolving pool of UK auto lease receivables, their corresponding final balloon payments and residual value (RV) cash flows. These auto leases are extended to corporate, SME, government and private lessees in England and Wales by LeasePlan UK Limited (« LPUK ») owned by LeasePlan Corporation N.V. (« LPC »), rated Baa1/P-2, A3(cr). This is the fifth public securitisation of LPUK.As of January 2021, the present value of the outstanding lease receivables balance is approx. GBP 550 million of which the present value of estimated Residual Value (RV) cash flows amounts to approx. GBP 247.5 million. The RV portion of the lease cash flows are securitized and are based on car value estimates of the leasing contracts for the lease contract maturity. LPUK, through its buy-back obligation, will compensate for RV losses in case used car market prices should be below the securitized estimate when the vehicle is sold.RATINGS RATIONALEThe transaction benefits from credit strengths such as experience of the originator, financial strength and securitisation experience of the originator’s parent company, and good historical performance of the lease portfolio. However, Moody’s notes that the transaction features some credit weaknesses such as more complex maintenance services and higher lessee concentration because of the fleet lease products that are securitized. Furthermore, the portfolio is exposed to RV risk in case the originator LPUK does not meet its buy-back obligation to compensate for RV losses on securitised RV cash flows. This exposes the transaction to a higher degree of linkage to the originator. Various mitigants have been put in place in the transaction structure, such as the obligation for LPUK to nominate a back-up servicer, a back-up realisation agent and a back-up sub-maintenance coordinator upon the occurrence of an appointment trigger within 120 days. The appointment of a back-up sub-maintenance coordinator upon downgrade of LPC will mitigate maintenance service disruptions to lessee’s thereby mitigating lease contract termination risk.In addition, the transaction provides certain structural features such as: (i) a liquidity reserve equal to 0.63% of the Class A initial balance amortising with a floor of GBP 2 million, (ii) a revolving period of 1 year which could lead to an asset quality drift although this is mitigated to some extent by the portfolio concentration limits and some early amortization events, and (iii) a fixed-floating interest rate swap hedging the fixed-floating mismatch stemming from the Class A Notes paying a floating rate of interest and the portfolio made of fixed rate leases.Moody’s analysis focused, amongst other factors, on (i) an evaluation of the underlying portfolio of leases; (ii) back-up sub-maintenance coordinator and back-up servicer solutions; (iii) the credit enhancement provided by subordination, reserve fund and the excess spread, as all assigned leases will be purchased at a discount rate of 5%; (iv) the liquidity support available in the transaction by way of principal to pay interest and the reserve fund.CURRENT ECONOMIC UNCERTAINTY:The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of consumer assets from the current weak UK economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Moody’s determined the portfolio lifetime mean default rate of 4.0%, a stochastic recovery rate of 50% and Aaa portfolio credit enhancement (« PCE ») of 14.0% related to the lease installments. The expected defaults and recoveries capture our expectations of performance considering the current economic outlook, while the PCE captures the loss we expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and PCE are parameters used by Moody’s to calibrate its inverse normal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in our ABSROM cash flow model.In the event that LPUK does not meet its buy-back obligation to compensate for RV losses at the end of the lease contract, the transaction would be fully exposed to RV risk. Moody’s applies its RV risk assessment to evaluate this risk. The Aaa (sf) baseline haircut for RV exposure in this UK auto lease portfolio, after adjustment for its specific characteristics, is 41.5%.This haircut takes into account (i) robustness of RV setting, (ii) good track record of car sales, (iii) increased concentration in the RV maturity and (iv) the relatively high exposure to Alternative Fuel Vehicles (AFVs). The haircut is lower than the EMEA Auto ABS average and is based on Moody’s assessment of the pool which is mainly driven by (i) the originator’s quality to set residual values, (ii) historical portfolio performance, and (iii) portfolio composition. Our RV analysis results in a residual value credit enhancement (RV CE) of 12.5% for the Aaa (sf) rated notes.The principal methodology used in this rating was « Moody’s Global Approach to Rating Auto Loan- and Lease-Backed ABS » published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1202515. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the rating:Factors that may cause a downgrade of the rating on the Class A notes include a significant decline in the overall performance of the pool and a significant deterioration of the credit profile of the originator.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. 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