Temese Funding 2 notes rating affirmed in UK equipment lease securitisation

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Temese 2 notes rating affirmed

Highlights

Morningstar DBRS affirms rating for Temese Funding 2 as of 9 March 2026, with cumulative defaults rising to 4.0% from 3.7%.
Credit enhancement for the Class A Notes climbs to 37.7% from 24.7%, supported by subordination and a GBP 8.3 million cash reserve.
Base case loss given default drops to 60.7% from 61.6%, and assumed loss on residual value receivables decreases to 37.7% from 41.9% due to portfolio amortisation.

Annual review highlights portfolio and support metrics

As reported by Morningstar DBRS, the rating action is based on portfolio performance as of 9 March 2026, updated probability of default, loss given default and residual value assumptions, and the level of credit enhancement available to protect the Class A Notes. The agency says the securitisation is backed by equipment lease receivables to corporate clients in the United Kingdom, originated by Investec Asset Finance PLC and CF Corporate Finance Ltd., both owned by Investec Bank PLC, with Investec Asset Finance acting as servicer.

The portfolio includes fixed-term agreements, minimum-term agreements with residual value receivables, hire-purchase loans and commercial loans. The transaction closed in November 2014, was last restructured in May 2021, and its revolving period ended in March 2025; the legal final maturity date falls on the December 2037 payment date.

As of 9 March 2026, loans two to three months in arrears account for 0.1% of the outstanding portfolio balance, while loans more than three months in arrears represent 0.3%, both unchanged from the last annual review. Cumulative defaults rise to 4.0% of total purchased receivables from 3.7% at the previous review.

Higher credit enhancement supports top rating

Morningstar DBRS maintains its base case probability of default at 4.0% at the B (sf) rating level and lowers its base case loss given default to 60.7% from 61.6%, citing changes in portfolio composition. For residual value receivables, which represent final balloon payments on minimum-term leases for material handling equipment, the agency assumes a 37.7% loss at the AAA (sf) level, down from 41.9% because of portfolio amortisation.

Credit enhancement for the Class A Notes increases to 37.7% from 24.7% at the last annual review, supported by the subordination of the Class B Notes and the reserve fund. As of the March 2026 payment date, the cash reserve stands at its target level of about GBP 8.3 million, all principal deficiency ledgers are clear, and the amortising liquidity reserve is funded to its target of 1.6% of the Class A Notes balance, or about GBP 3.7 million, to cover senior fees and interest shortfalls.

Our earlier coverage of Morningstar DBRS’s ratings on the Satus 2026-1 plc UK auto finance securitisation explained how the deal is backed by used-vehicle hire purchase and personal contract purchase loans originated and serviced by Startline Motor Finance. We highlighted that guaranteed future value features on the PCP contracts introduce residual value risk, which is a key factor in the agency’s stress scenarios alongside the transaction’s sequential payment structure and liquidity reserves.

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