DBRS Morningstar Finalises Provisional Rating of AA (sf) on Class A2021-01 and Discontinues Class A2019-01 Rating of Columbus Master Credit Cards Fondo de Titulización

DBRS Ratings GmbH (DBRS Morningstar) finalised the provisional rating of AA (sf) on the Class A2021-01 Notes (together with the unrated Class C2021-01 Notes, the Notes Series 2021-01) issued by Columbus Master Credit Cards Fondo de Titulización (the Issuer).

As the issuance proceeds of the Notes Series 2021-01 were used to redeem the outstanding Notes Series 2019-01 of the Issuer, the rating of the Class A2019-01 notes was discontinued due to the full repayment. Prior to the discontinuation, the rating of the Class A2019-01 Notes was AA (sf).

The rating addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

The Issuer is a securitisation programme of credit card receivables granted to individuals in Spain, originated and serviced by Servicios Financieros Carrefour (the originator).

DBRS Morningstar based its rating 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, principal payment, and yield rates under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay the Class A2021-01 Notes.
-- The originator and its parents’ financial strength and its capabilities with respect to origination and underwriting.
-- 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 rating of the Kingdom of Spain at “A” with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

PROGRAMME AND TRANSACTION STRUCTURE
The programme incorporates separate interest and principal waterfalls during the programme revolving and programme amortisation periods that allocate the available funds including reserve fund and collections of interest, principal, and recoveries from receivables to each specific notes series, if applicable.

The programme has an indefinite revolving period. During this period, additional receivables may be purchased by the Issuer, provided that the eligibility criteria set out in the transaction documents are satisfied. For this Issuer, the revolving termination events are set at the programme level, instead of series-specific ones. Occurrence of such events would lead to early amortisation of all outstanding notes at the same time, subject to series-specific waterfalls and allocation percentages. For the Notes Series 2021-01, the scheduled revolving period is 24 months.

Credit enhancement available to the notes series during the amortisation period consists of subordination of the junior notes and SICF note, potential overcollateralisation, and excess spread.

The programme also includes a general reserve that is available to cover the shortfalls in senior expenses, swap payments if applicable, and interest on the Class A notes of the entire programme. The general reserve is amortising, subject to a floor amount of 0.5% of the initial Class A notes balance of all notes series.

A commingling reserve facility is also available to the Issuer following the servicer’s breach of its payment obligations. The required amount is equal to the sum of (1) the latest three-month average (subject to a floor of 1.5%) of monthly prepayments related to the investor share of outstanding principal receivables, and (2) the latest three-month average (subject to a floor of 3%) of monthly nondirect debit collections (excluding insurance premiums) related to the investor share of outstanding principal receivables.

COUNTERPARTIES
Banco Santander S.A. is the issuer account bank for the programme. Based on DBRS Morningstar’s ratings of Banco Santander S.A. 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.

PORTFOLIO ASSUMPTIONS, COVID-19 CONSIDERATIONS, AND KEY DRIVERS
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 and volatile for many credit card portfolios.

The yield has always been very stable at around 20% since the programme inception, mainly driven by the following factors: (1) the securitised portfolio consists entirely of revolving transactions, which by nature would incur interest charges as long as the receivable is performing, (2) the allocation order of collections by the originator is interest yield first, which would result in a flat yield level before adjustments for defaulted receivables, as long as the total payments are higher than the accrued interest yield amounts, (3) late payment fees are capitalised in the outstanding debt amount, instead of being included in the yield rate; and (4) the uniform 20.04% nominal headline rate (excluding fees and commissions) for the PASS card agreements until September 2020.
From mid-2020, the reported yield started to decline following a Spanish supreme court ruling in March 2020, which deems a 26.82% credit card contractual interest rate of a competitor usurious as it was considered notably higher than the average normal money interest rate published by the Bank of Spain for the credit card segment at the inception of this specific agreement. The originator started to reduce the annual percentage rate of new credit agreements in September 2020 to 18.99%, which contributed to a gradual decline in the yield. After considering the historical trends and potential compression and further usury rate litigation, DBRS Morningstar reduced the expected yield to 17.5% from 19.0%.

The monthly principal payment rate (MPPR) has been in a low range of 3% to 5%, which is driven by the exclusion of interest-free payments made during the grace period and large percentages of accounts making minimum payments between 3% and 5% of credit limits. As the allocation order of collections by the originator is interest yield first before allocating the remaining to the principal collection, MPPRs are expected to be in a stable range as long as the borrower is not delinquent and making required minimum payments. The stable trend was disrupted in May 2020 when the MPPR reached 3.93%, the lowest level since 2017. Based on the analysis of historical data, macroeconomic factors, potentially permanent changes in borrowers’ payment behaviour, DBRS Morningstar reduced the expected MPPR to 4.0% from 4.5% and a customised nonlinear decline stress curve is applied in the cash flow analysis.

The charge-offs reported by the Issuer since the programme inception have been historically lower than the entire managed book by approximately 2% to 3%. The noticeable better performance is due to the eligibility criteria specifying nondelinquent receivables. The positive impact, however, disappeared in the few months following the first national pandemic lockdown in March 2020, as reported charge-off rates from the managed pool and securitised pool converged. The positive difference re-appeared toward the end of 2020 with the latest 12-month average around 2%, in comparison with the most recent managed pool data as of April 2021 showing three- and six-month average annualised charge-off rates of 9.5% and 10.3%, respectively. Based on the analysis of historical data, macroeconomic factors, positive selection of eligible receivables, and portfolio-specific adjustment because of the coronavirus impact, DBRS Morningstar revised the expected charge-off rate to 9.25% from 8%.

As the receivables are unsecured and no static vintage data was provided, DBRS Morningstar used a zero-recovery assumption in its cash flow analysis.

While the receivables are exposed to potential set-off by the borrowers, DBRS Morningstar considers this risk to be nominal as the originator currently does not take deposits.
DBRS Morningstar analysed the programme and transaction structure in its proprietary cash flow tool.

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 18 June 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/380281/global-macroeconomic-scenarios-june-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 and 17 June 2020, DBRS Morningstar published commentaries outlining how the coronavirus crisis is likely to affect the DBRS Morningstar-rated ABS transactions in Europe. For more details, please see these 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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 rating 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 transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted.

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” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for the rating include investor reports provided by InterMoney Titulización S.G.F.T., S.A and the following data provided by the originator through one of the arrangers, BNP Paribas:
-- Receivables balances, monthly payment rates, monthly purchase rates, delinquencies, gross charge-off rates, interest yield rates, and recoveries from January 2011 to April 2021; and
-- A pool cut of the portfolio as at 30 April 2021.

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 this rating 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.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- Expected Yield Rate of 17.5%
-- Expected MPPR of 4%
-- Expected Charge-Off Rate of 9.25%

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.

DBRS Morningstar concludes that the expected ratings under the four stress scenarios are:
-- Class A Notes: A (high) (sf), A (high) (sf), A (sf), A (low) (sf)

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.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Roberto Perez, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 June 2021

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Geschäftsführer: Detlef Scholz
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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 (6 April 2021), https://www.dbrsmorningstar.com/research/376314/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.
-- 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.