DBRS Morningstar Confirms Ratings of the Notes Issued by aZul Master Credit Cards DAC

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings on the notes issued by aZul Master Credit Cards DAC (the Issuer) as follows:

-- Series 2020-1, Class A Notes at A (high) (sf)
-- Series 2020-1, Class C Notes at BB (sf)

The rating on the Class A Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The rating on the Class C Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance of the Issuer, in terms of delinquencies, charge-off, principal payment, and yield rates as of the July 2021 payment date;
-- The ability of programme- and series-specific structures to withstand stressed cash flow assumptions;
-- No occurrence of a programme revolving termination event;
-- Current available credit enhancement to the notes series to cover the expected losses at their respective rating levels; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The Issuer is a revolving programme of credit card receivables acquired (Ruby portfolio) or granted (Core portfolio) by WiZink Bank S.A. (WiZink or the seller) to individuals in Spain. WiZink also acts as the servicer of the portfolio. The transaction closed in July 2020 with an initial receivables balance of EUR 295.0 million and a maximum programme size of EUR 2.0 billion.

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

The programme has an indefinite revolving period. During this period, the Issuer may purchase additional receivables, 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 at the series level. The 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.

Credit enhancement available to the rated notes during the amortisation period consists of subordination of the junior notes and seller interest credit facility note, potential overcollateralisation, and excess spread.

The transaction benefits from 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 to a target amount equal to 1.2% of all Class A Notes outstanding balance, subject to a floor amount of 0.6% of the initial Class A Notes balance of all notes series. As of the July 2021 payment date, the reserve was at its target balance of EUR 2.7 million.

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 1.5% of outstanding receivables balance. As of the July 2021 payment date, the reserve was funded to its target of EUR 4.5 million.

COUNTERPARTIES
Société Générale S.A. (Spanish branch) acts as the issuer account bank for the transaction. Based on DBRS Morningstar’s private ratings on Société Générale S.A. (Spanish branch), 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 to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The monthly principal payment rate (MPPR) has consistently been in the range of 9% to 11% since issuance. Based on the analysis of historical data, macroeconomic factors, and the portfolio-specific coronavirus adjustments, DBRS Morningstar set the expected MPPR at 9.8%.

The yield rate observed since issuance has been in the range of 15% to 19%, underperforming DBRS Morningstar’s 18.5% yield assumption, mainly driven by the moratoria related to the coronavirus outbreak and a Spanish supreme court ruling in March 2020, which deemed that the 26.8% contractual interest rate of one specific WiZink credit card agreement was 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. After considering the historical trends and potential compression and set-off from further usury rate litigation, DBRS Morningstar reduced its expected yield assumption to 16.7%.

Charge-off rates since issuance have been rising on a strong upward trend, with the latest reported annualised charge-off rate of 8.8% and a three-month average of 8.2% as of the July 2021 payment date. Based on the analysis of historical data, macroeconomic factors, positive selection of eligible receivables, and portfolio-specific adjustments due to the coronavirus’ impact, DBRS Morningstar maintained its expected charge-off rate at 12.5%.

These portfolio asset assumptions also consider the migration of the securitised pool towards the core portfolio over the next 12 months as the Ruby portfolio is in run-off.

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

DBRS Morningstar analysed the program and transaction structure in its proprietary cash flow engine.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may continue to increase, and payment and yield rates could remain subdued and volatile for many credit card portfolios. The ratings are based on additional analysis and, where appropriate, adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.

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, 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 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
DBRS Morningstar considers some unusual aspects of general eligibility criteria and related representations and warranties given by the seller to the Issuer regarding compliance with law (specifically, an usury law carve-out) to have a negative rating impact.

In DBRS Morningstar’s view, the legal and regulatory risks arising from the non-standard eligibility criterion fall under the Transaction Governance in the environmental, social, and governance (ESG) analytical framework for structured finance transactions.

The A (high) (sf) rating assigned to the Class A notes is, consequently, one notch lower than the level implied by the cash flow results. The BB (sf) rating on the Class C Notes, on the other hand, is not affected by the 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 the “Master European Structured Finance Surveillance Methodology” (8 February 2021).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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/381451/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings include monthly investor and collateral reports provided by Intermoney Titulización, S.G.F.T., S.A. (the Transaction Manager).

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

At the time of the initial ratings, 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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.

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

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

-- Expected Charge-Off Rate: 12.5%
-- Expected Principal Payment Rate: 9.8%
-- Expected Yield Rate: 16.7%

-- Scenario 1: a 25% increase in the expected Charge-Off Rate
-- Scenario 2: a 25% decrease in the expected Principal Payment Rate
-- Scenario 3: a 25% decrease in the expected Yield Rate
-- Scenario 4: a 15% increase in the expected Charge-Off Rate, 15% decrease in the expected Principal Payment Rate and 15% decrease in the expected Yield Rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios will be:
-- Class A Notes: A (low) (sf), A (low) (sf), A (sf), BBB (high) (sf)
-- Class C Notes: B (high) (sf), BB (low) (sf), B (high) (sf), B (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.

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

Lead Analyst: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 July 2020

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Tel. +49 (69) 8088 3500

Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

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

-- Master European Structured Finance Surveillance Methodology (8 February 2021), https://www.dbrsmorningstar.com/research/373435/master-european-structured-finance-surveillance-methodology.
-- 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 Servicers (19 November 2020), https://www.dbrsmorningstar.com/research/370270/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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
-- 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.