Key Points
- DBRS Morningstar confirmed the AAA (sf) rating on the Class A Notes issued by Temese Funding 2 plc.
- The transaction is backed by UK equipment lease receivables originated by Investec Asset Finance PLC and CF Corporate Finance Ltd., both owned by Investec Bank PLC.
- 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 stood at 0.1% and loans more than three months in arrears at 0.3%, both unchanged from the last annual review.
- Cumulative defaults increased to 4.0% of total purchased receivables from 3.7% at the previous review.
- Credit enhancement for the Class A Notes rose to 37.7% from 24.7% at the last annual review.
- The cash reserve was at its target level of about GBP 8.3 million, while the amortising liquidity reserve was funded to its target of 1.6% of the Class A Notes balance, or about GBP 3.7 million.
- Morningstar DBRS kept its base case probability of default at 4.0% at the B (sf) rating level and lowered its base case loss given default to 60.7% from 61.6%.
London (Britain Today News) April 29, 2026 – DBRS Morningstar has affirmed the AAA (sf) rating on the Class A Notes issued by Temese Funding 2 plc after its annual review of the UK equipment lease securitisation, citing stable delinquency metrics, stronger credit enhancement and updated assumptions for default, loss and residual value risk.
What did the agency confirm?
The confirmation of the AAA (sf) rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal by the legal final maturity date. The agency said the decision followed an annual review of the transaction and was based on portfolio performance, updated probability of default and loss given default assumptions, residual value loss assumptions, and the level of credit enhancement available for the notes. The review also took into account the current economic environment and the transaction’s ability to withstand stress conditions.
How is the deal structured?
Temese Funding 2 plc is a securitisation of UK equipment lease receivables originated by Investec Asset Finance PLC and its affiliate CF Corporate Finance Ltd., both fully owned by Investec Bank PLC. Investec Asset Finance acts as servicer for the portfolio. The portfolio consists of fixed-term agreements, minimum-term agreements with residual value receivables, hire-purchase loans and commercial loans. The notes were issued under a transaction that closed in November 2014 and was last restructured in May 2021.
The revolving period ended in March 2025, meaning the deal is now in a more mature amortising stage than during its revolving phase. The legal final maturity date remains the December 2037 payment date. In securitisation terms, that final date matters because it sets the outside deadline by which the structure must repay noteholders in full.
What does the portfolio show?
The transaction’s recent portfolio performance remained stable in key delinquency categories. As of 9 March 2026, loans two to three months in arrears accounted for 0.1% of the outstanding portfolio balance, while loans more than three months in arrears represented 0.3%. Both numbers were unchanged from the last annual review, which suggests the book has not shown material near-term deterioration.
Cumulative defaults, however, rose to 4.0% of total purchased receivables from 3.7% at the previous review. That increase is not unusual for an ageing securitised portfolio, but it remains one of the key indicators the agency monitors when deciding whether the credit profile still supports the rating. The transaction’s ongoing performance is therefore being measured not just by current arrears, but also by how much loss has accumulated since closing.
Why was the rating supported?
The most important support factor was the increase in credit enhancement for the Class A Notes to 37.7% from 24.7% at the last annual review. Credit enhancement comes from the subordination of the Class B Notes and the reserve fund, and it provides a buffer against losses before the senior notes are affected. In practical terms, the higher that cushion becomes, the more protection the top-rated notes have if portfolio performance weakens.
The cash reserve stood at its target level of about GBP 8.3 million as of the March 2026 payment date. All principal deficiency ledgers were clear, which indicates that losses had not been left sitting unabsorbed in the structure at that point. The amortising liquidity reserve was also 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.
What assumptions changed?
Morningstar DBRS maintained its base case probability of default at 4.0% at the B (sf) rating level, while lowering its base case loss given default to 60.7% from 61.6%. The agency said the lower LGD assumption reflected changes in portfolio composition. For residual value receivables, which relate to final balloon payments on minimum-term leases for material handling equipment, the agency assumed a 37.7% loss at the AAA (sf) level, down from 41.9% because of portfolio amortisation.
Those updates matter because rating agencies do not rely only on observed arrears; they also model how much money could be lost under stress if borrowers default and asset recoveries underperform. In this case, the residual value element remains an important analytical feature because balloon payments can behave differently from standard amortising instalments. The reduced risk assumption therefore helped support the current confirmation.
Why does residual value matter?
Residual value receivables are the final balloon payments due on certain minimum-term leases, and they add a layer of risk because the equipment must hold enough value at the end of the lease term. If the obligor or third-party supplier defaults, recovery depends on what can be achieved by re-leasing or selling the equipment, and that value is not guaranteed. DBRS Morningstar’s stress approach reflects that uncertainty by applying a loss assumption to those receivables at the AAA (sf) level.
This type of structure is common in equipment leasing securitisations because the financed assets can provide recovery value, but the timing and level of that recovery can vary. The agency’s review suggests that, despite that exposure, the current enhancement levels and reserve position remain strong enough to support the top rating. That is the central reason the notes were affirmed rather than placed under pressure.
What does this mean for investors?
For investors in the Class A Notes, the affirmation suggests that the senior tranche continues to benefit from strong protection and stable performance indicators. The unchanged arrears profile, the higher credit enhancement and the full reserve funding all point to a structure that remains resilient under the agency’s framework. The confirmation also indicates that the transaction has progressed into a more seasoned phase without triggering concerns severe enough to challenge the AAA (sf) rating.
At the same time, cumulative defaults have edged higher, so the deal is not risk-free and remains dependent on continued disciplined performance from the underlying lease book. Investors will likely continue to focus on arrears, defaults, reserve balances and residual value assumptions at future reviews. Any meaningful weakening in those areas could change the rating trajectory, even if the present review remained stable.
