DBRS Morningstar Assigns Ratings to abc SME Lease Germany SA, acting in respect of its Compartment 6

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the Class A Notes and an A (high) (sf) rating to the Class B Notes issued by abc SME Lease Germany SA, acting in respect of its Compartment 6 (the Issuer). DBRS Morningstar does not rate the Class C Notes issued in this transaction.

The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal maturity date, on 20 November 2028. The rating of the Class B Notes addresses the ultimate payment of interest and repayment of principal by the legal maturity date while junior to other outstanding classes of notes, but the timely payment of interest when they are the senior-most tranche.

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.
-- The seller’s, originators’ and servicers’ capabilities with respect to originations, underwriting, servicing and financial strength.
-- DBRS Morningstar’s operational risk review on abcbank GmbH, which it deemed to be an acceptable servicer.
-- The appointment of akf bank GmbH & Co KG as the transaction’s backup servicer and its capabilities with respect to servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral and historical and projected performance of abcbank GmbH’s (the seller) portfolio.
-- DBRS Morningstar’s sovereign rating of Germany at AAA with Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the Issuer with the seller.

TRANSACTION STRUCTURE
The transaction represents the issuance of EUR 428.1 million of Class A Notes, EUR 42.8 million of Class B Notes and EUR 41.8 million of Class C Notes backed by a static portfolio of EUR 512.7 million of fixed-rate receivables related to leases granted by abcbank GmbH, ETL Leasing GmbH, milon financial services GmbH and Hako Finance GmbH (collectively, the Originators) to small businesses and professional clients residing in Germany.

The portfolio will be serviced by abcbank GmbH (the Master Servicer).The transaction allocates payments on separate interest and principal payment priorities and benefits from a EUR 1.95 million amortising liquidity reserve funded at closing through a subordinated loan. The liquidity reserve can be used to cover senior costs and interest on the Class A and Class B Notes, and to the extent that excess can be released, it can be used to offset defaulted receivables through a principal deficiency ledger mechanism, thus providing soft credit enhancement. A EUR 2.4 million commingling reserve was also funded at closing that can be drawn in a commingling risk event.

The repayment of the notes is sequential for principal repayments, starting on the first payment date in December 2019 , and continues unless certain trigger events, such as non-payment or insolvency of the originators, occur. Under these circumstances, the interest and principal payments become combined and fully sequential in a post-enforcement order of priority and the switch is non-reversible.

COUNTERPARTIES
The Bank of New York Mellon, Frankfurt branch, acts as the account bank for the transaction. Based on the DBRS Morningstar’s AA rating of the Bank of New York Mellon, the downgrade provisions and structural mitigants in the transaction, DBRS Morningstar considers the structure to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

The transaction structure was analysed using Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include information provided by abcbank GmbH. DBRS Morningstar was also provided with detailed stratification tables and line-by-line information of the final portfolio selected by abcbank GmbH as of 31 October 2019.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

An asset and a cash flow analysis were both conducted. DBRS Morningstar used to assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios:

-- Probability of default (PD) used: Expected defaults (PD) of 1.38%, 21.83% for a AAA (sf) scenario, 14.05% for an A (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Loss severity: Expected Loss given defaults (LGD) of 54.40%, 67.64% for a AAA (sf) scenario, 63.64% for an A (high) (sf) scenario, a 25% and 50% increase on the applicable LGD.

--Scenario 1: A 25% increase in the expected default rate (PD)
--Scenario 2: A 50% increase in the expected default rate (PD)
--Scenario 3: A 25% increase in the expected LGD
--Scenario 4: A 25% increase in the expected default rate (PD) and a 25% increase on the expected LGD
--Scenario 5: A 50% increase in the expected default rate (PD) and a 25% increase on the expected LGD
--Scenario 6: A 50% increase in the expected LGD
--Scenario 7: A 25% increase in the expected default rate (PD) a 50% increase on the expected LGD
--Scenario 8: A 50% increase in the expected default rate (PD) and a 50% increase on the expected LGD

DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are
-- Class A Notes: AA (high) (sf), AA (high) (sf), AAA (sf), AA (high) (sf), A (high) (sf), AA (high) (sf), A (high) (sf), A (low) (sf).
-- Class B Notes: A (high) (sf), A (low) (sf), BBB (high) (sf), A (low) (sf), BBB (high) (sf), BB (high) (sf), BBB (high) (sf), BB (high) (sf), BB (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.

Lead Analyst: Stephan Rompf, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 19 November 2019

DBRS Ratings GmbH
Neue Mainzer Straße 75
60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

--Rating European Consumer and Commercial Asset-Backed Securitisations
--Rating CLOs Backed by Loans to European SMEs
--Legal Criteria for European Structured Finance Transactions
--Rating CLOs and CDOs of Large Corporate Credit
--Operational Risk Assessment for European Structured Finance Servicers
--Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.