DBRS Morningstar Finalises Provisional Ratings on BL Consumer Issuance Platform II S.à r.l., acting in respect of its Compartment BL Consumer Credit 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E, Class F, and Class X notes (collectively with the unrated Class G Notes, the Notes) issued by BL Consumer Issuance Platform II S.à r.l., acting in respect of its Compartment BL Consumer Credit 2021 (the Issuer) as follows:

-- Class A notes at AAA (sf)
-- Class B notes at AA (sf)
-- Class C notes at A (high) (sf)
-- Class D notes at BBB (sf)
-- Class E notes at BB (sf)
-- Class F notes at B (low) (sf)
-- Class X notes at CCC (sf)

The ratings on the Class A and Class B notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The ratings on other classes of the rated notes address the ultimate payment of scheduled interest while subordinated then timely payment as the most-senior class and the ultimate repayment of principal by the legal final maturity date.

Net proceeds of the Notes were partly used to call the notes of BL Consumer Issuance Platform S.A., acting in respect of its compartment BL Cards 2018 on the first optional redemption date of 25 March 2021.

The transaction is a securitisation of credit card, revolving line, and fixed-rate instalment loans granted to individuals in Belgium and Luxembourg, originated and serviced by Buy Way Personal Finance SA (the seller and originator).

The ratings are based on the following analytical considerations:
-- The transaction’s capital structure, including form and sufficiency of available credit enhancement to support DBRS Morningstar’s expectation of charge-off and default, recovery, principal payment, and yield rates under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the rated notes.
-- The originator’s capabilities with respect to origination, underwriting, and servicing and the existence of warm backup servicer.
-- An operational risk review of the originator, which DBRS Morningstar deems to be an acceptable servicer.
-- The transaction parties’ financial strength regarding their respective roles.
-- The credit quality, diversification, and historical and projected performance of the securitised portfolio.
-- DBRS Morningstar’s sovereign ratings of the Kingdom of Belgium at AA (high) with a Negative trend and the Grand Duchy of Luxembourg at AAA with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

TRANSACTION STRUCTURE

The transaction incorporates separate interest and principal waterfalls during the revolving and amortisation periods that allocate the available funds including reserve funds, swap receipts, and collections of interest, principal, and recoveries from receivables. The Notes amortise sequentially (except for the Class X notes ahead of the Class G notes) and the interest priority of payments incorporates a principal deficiency ledger (PDL) for each class of notes (except for the Class X notes) where available funds may be used to cure the class-specific PDLs sequentially.

The transaction has a 36-month scheduled revolving period. During this period, additional receivables may be purchased by the Issuer, provided that the eligibility criteria and portfolio conditions set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers or servicer or seller termination.

The transaction includes a general reserve that is available to cover the shortfalls in senior expenses, swap payments, and interests on the Class A, Class B, and Class C notes (subject to the most-senior class status and/or PDL conditions). The general reserve is amortising subject to a floor amount of EUR 1,309,000. There is also a spread account (with zero balance at closing) to trap excess spread in case it falls below 4% to provide liquidity support to the senior expenses, swap payments, and interest due on the rated notes.

COUNTERPARTIES
Citibank Europe plc, Luxembourg Branch, is the issuer account bank for the transaction. Based on DBRS Morningstar’s rating of Citibank Europe plc and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the issuer account bank to be commensurate with the ratings assigned.

Natixis is the swap counterparty for the transaction. DBRS Morningstar has a private rating on Natixis, which meets the criteria to act in such capacity at closing. The downgrade provisions in the swap documentation are largely consistent with DBRS Morningstar’s criteria but the transaction will be monitored based on DBRS Morningstar’s rating of Natixis or its replacement.

PORTFOLIO ASSUMPTIONS AND COVID-19 CONSIDERATIONS
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to increases in unemployment rates and adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies could continue to rise, and payment and yield rates could remain subdued in the coming months for many credit card and revolving loan portfolios. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

After removing the interest collections, the estimated monthly principal payment rate (MPPR) for the total revolving loan portfolio is approximately 9% during the January 2010 to December 2020 reporting period. In comparison, the MPPRs for the Buy Way Line and Luxembourg portfolios are lower and have averaged between 5% and 6% over the past five years. Based on the analysis of historical data, macroeconomic factors, product type-specific coronavirus-related adjustments to expected performance, and the geographic concentration, DBRS Morningstar set the expected MPPR for the total revolving loans at 6.5%.

The total portfolio yield has been very stable for the total revolving credit portfolio, largely driven by the Belgian usury rates. Based on the analysis of historical data and the geographic limit, DBRS Morningstar set the expected yield at 11.6%.

The reported historical charge-off rates for the total revolving credit portfolio have also been relatively stable at approximately 3.7% on average during the reporting period. Based on the analysis of historical data, macroeconomic factors, and the product type-specific coronavirus-related adjustments to expected performance, DBRS Morningstar set the expected charge-off rate at 4.4%.

Overall default rates are relatively low for the originator’s unsecured instalment loan lending with considerable volatility among historical vintages. Most of the outstanding instalment loans are from personal loan originations that restarted in 2016. The instalment loan default performance to date benefitted from a benign credit environment and is not considered sufficiently seasoned to cover the full terms of loans or an economic cycle. In contrast, the default performance of sales finance lending is more seasoned but influenced by low origination volumes. Based on performance and origination trends, DBRS Morningstar set the expected lifetime default rate for the instalment loan pool at 6.98%.

The expected recovery rate for all loan types is set at 25%, which is adjusted for the expected coronavirus impact and is comparable to jurisdictions with similar prescriptive legislations for recovery processes, such as France.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated ABS transactions in Europe. For more details, please see the following commentaries: https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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” (3 September 2020).

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

An asset and a cash flow analysis were both conducted, and portfolio conditions set forth in the transaction documents were considered.

Other methodologies referenced in these transactions are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include the following data provided by the arrangers, Deutsche Bank AG and Natixis:
-- Dynamic monthly receivables balance, payment rates, delinquencies, charge-off rates, origination, and yield rates for total and two revolving loan product types (Buy Way Line and exCetelem in Luxembourg) from March 2010 to December 2020;
-- Static monthly default by balance and account for three instalment product types (personal loans and sales finance loans with or without interest) from January 2009 to October 2020;
-- Static annual recovery by balance for total portfolio, with a further breakdown between restructured loans and accelerated loans from 2004 to 2020;
-- Historical prepayments of instalment loans from January 2016 to December 2020; and
-- An initial portfolio with associated stratification tables as at 28 February 2021.

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

DBRS Morningstar was not 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 newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments. This is the first rating action since the Initial Rating Date.

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

To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the ratings:

For the revolving loans:
-- Expected Yield Rate of 11.6%
-- Expected MPPR of 6.5%
-- Expected Charge-Off Rate of 4.4%
Scenario 1: a 25% decrease in the Expected Yield Rate
Scenario 2: a 25% decrease in the Expected MPPR
Scenario 3: a 25% increase in the Expected Charge-Off Rate
Scenario 4: a 15% decrease in the Expected Yield Rate, 15% decrease in the Expected MPPR and 15% increase in the Expected Charge-Off Rate.
For the instalment loans:
-- Expected Default Rate of 6.98%
Scenario 5: A 25% increase in the expected default rate.
Scenario 6: A 50% increase in the expected default rate.

For all loans:
-- Expected Recovery Rate of 25% (Loss Given Default of 75%)
Scenario 7: A 25% increase in the Loss Given Default.
DBRS Morningstar concludes that the expected ratings under the seven stress scenarios are:
--Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (high) (sf)
--Class B Notes: AA (sf), AA (sf), AA (sf), AA (low) (sf), AA (low) (sf), A (high) (sf), AA (sf)
--Class C Notes: A (sf), A (sf), A (sf), A (low) (sf), A (sf), BBB (high) (sf), A (sf)
--Class D Notes: BBB (low) (sf), BBB (sf), BBB (low) (sf), BBB (low) (sf), BBB (low) (sf), BB (high) (sf), BB (high) (sf)
--Class E Notes: BB (low) (sf), BB (sf), BB (sf), BB (low) (sf), BB (low) (sf), B (high) (sf), B (sf)
--Class F Notes: below B (low) (sf), B (low) (sf), B (low) (sf), B (low) (sf), B (low) (sf), below B (low) (sf), below B (low) (sf)

No rating sensitivity was conducted on the Class X notes.

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

DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Shalva Beshia, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 16 February 2021

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

-- Rating European Consumer and Commercial Asset Backed Securitisations (3 September 2020),
https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (30 September 2020),
https://www.dbrsmorningstar.com/research/367603/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (19 November 2020),
https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- Interest Rate Stresses for European Structured Finance Transactions (28 September 2020),
https://www.dbrsmorningstar.com/research/367292/interest-rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (24 September 2020),
https://www.dbrsmorningstar.com/research/367092/derivative-criteria-for-european-structured-finance-transactions.

-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021),
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

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