PCL Funding XII secures provisional Morningstar DBRS ratings for UK and Ireland insurance premium ABS

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PCL Funding XII secures ABS ratings

Highlights

Morningstar DBRS assigns provisional ratings of (P) AAA (sf) to Series 2026-1 Class A, (P) A (high) (sf) to Class B, and (P) A (sf) to Class C Notes in the PCL Funding XII PLC ABS transaction.
The PCL Funding XII transaction includes a 24-month revolving period for adding eligible receivables, with dynamic series-specific liquidity reserve sized to cover three months of senior expenses and rated note interest.
Floating-rate Sonia-linked notes create rate mismatch against fixed-rate collateral, with excess spread and reserve provisions providing partial mitigation but leaving the deal exposed to further interest rate increases.

Provisional ratings and deal structure

As reported by Morningstar DBRS, DBRS Ratings Limited assigns provisional credit ratings of (P) AAA (sf) to the Series 2026-1 Class A Notes, (P) A (high) (sf) to the Class B Notes, and (P) A (sf) to the Class C Notes to be issued by PCL Funding XII PLC. Morningstar DBRS does not assign a rating to the Series 2026-1 Class D Notes also expected in the transaction.

The transaction is backed by financing advances made by Premium Credit Limited to companies and individuals domiciled in the UK and the Republic of Ireland for nonlife insurance premia and other payment plans. Premium Credit Limited acts as originator and servicer, while Link Financial Outsourcing Limited is appointed as backup servicer.

Morningstar DBRS says its provisional ratings reflect the capital structure, the level of available credit enhancement, the transaction's ability to withstand stressed cash flow assumptions, and the originator's origination, underwriting and servicing capabilities. The agency also cites the credit quality and diversification of the collateral pool, the legal structure of the securitisation, and its sovereign ratings on the UK and Ireland, both at AA with a Stable trend.

The Series 2026-1 issuance sits within PCL's master issuance structure, under which outstanding series are supported by the same pool of receivables and follow similar servicing, amortisation, distribution priority and eligible investment rules. The deal includes a scheduled 24-month revolving period, during which additional receivables may be added if eligibility criteria are met, although that period can end earlier if performance triggers are breached or the servicer is terminated.

Liquidity protections and rate risk exposure

The transaction includes a series-specific liquidity reserve funded initially by the originator. Its target size is dynamic and is designed to cover three months of senior expenses and stressed interest payments on the rated notes, with further increases linked to delinquencies, defaults and excess spread ratio triggers.

Morningstar DBRS says the reserve forms part of available funds and can be used to cover shortfalls in senior expenses and interest payments on the rated notes. Reserve replenishment comes through the transaction's interest waterfalls or additional funding from the originator, subject to trigger conditions and the stage of the transaction.

The notes carry floating-rate coupons linked to daily compounded Sonia, creating a mismatch against the fixed-rate collateral. Morningstar DBRS says excess spread, the originator's ability to raise collateral rates and an undertaking to increase the required reserve during the revolving period partly mitigate that exposure, but the structure remains vulnerable to further interest rate increases.

HSBC Bank plc serves as account bank for the transaction. Morningstar DBRS says its private credit assessment of HSBC Bank plc and the downgrade provisions in the transaction documents support a level of counterparty risk consistent with the provisional ratings assigned.

Our earlier article on the Oban Cards 2026-1 plc issuance outlined a new UK credit card ABS deal under the Oban master trust, backed by receivables originated and serviced by Vanquis Bank Limited. It highlighted the preliminary ratings across multiple note classes and the key structural protections—subordination, excess spread, and a liquidity reserve—alongside a revolving period designed to support ongoing receivables purchases before repayment begins.

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