Press Release

DBRS Morningstar Finalises Provisional Ratings on Fortuna Consumer Loan ABS 2021 Designated Activity Company

Consumer Loans & Credit Cards

October 07, 2021

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings of AAA (sf), AA (low) (sf), A (low) (sf), BBB (sf), B (high) (sf), and B (sf) on the Class A, Class B, Class C, Class D, Class E, and Class X Notes (together, the Rated Notes) issued by Fortuna Consumer Loan ABS 2021 Designated Activity Company (the Issuer).

DBRS Morningstar did not assign a provisional rating to the Class F Notes also issued in this transaction.

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 ratings on the Class B Notes, Class C Notes, Class D Notes, and Class E Notes address the ultimate repayment of interest (timely when most senior) and the ultimate repayment of principal by the legal final maturity date. The rating on the Class X Notes addresses the ultimate repayment of interest and the ultimate repayment of principal by the legal final maturity date.

The Notes are backed by a portfolio of unsecured consumer loans brokered through auxmoney GmbH (auxmoney) in co-operation with Süd-West-Kreditbank Finanzierung GmbH (SWK), and granted to individuals domiciled in Germany.

The ratings are based on the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Relevant credit enhancement in the form of subordination, a cash reserve, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar's projected cumulative net loss assumptions under various stressed cash flow assumptions for the Rated Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- SWK and auxmoney's capabilities with regard to originations and underwriting;
-- CreditConnect GmbH's capabilities with regard to servicing;
-- The transaction parties’ financial strength with regard to their respective roles;
-- The credit quality of the collateral and historical and projected performance of the seller's portfolio;
-- DBRS Morningstar's sovereign rating on the Republic of Germany, currently at AAA with a Stable trend; and
-- The consistency of the transaction's legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the presence of legal opinions that address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction is static and the Class A Notes will begin to amortise on the first interest payment date. The transaction allocates payments on separate interest and principal priorities and benefits from an amortising liquidity reserve funded on the issue date through the proceeds of a sub-loan granted by the seller. The seller will sell and transfer the portfolio to the Issuer in two tranches, the first on 29 October 2021 and the second on 30 November 2021.

The notes repay sequentially and benefit from a PDL mechanism to capture excess spread to cure principal deficiencies. Principal is used to cover certain interest shortfall. The transaction structure also incorporates interest deferral triggers, conditioned on PDL debit amount and seniority of the notes, to defer interest payments on the notes.

The interest rate risk arising from the mismatch between the floating-rate notes and the fixed-rate contracts in the portfolio is expected to be hedged through an interest rate swap, which is expected to be consistent with DBRS Morningstar’s criteria.

COUNTERPARTIES
Elavon Financial Services DAC is the account bank for the transactions. Based on DBRS Morningstar’s private rating of Elavon Financial Services DAC and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the ratings assigned.

BNP Paribas SA is the swap counterparty for the interest rate Swap. DBRS Morningstar has a Long-Term Issuer Debt rating of AA (low) on BNP Paribas SA, which meets its criteria to act in such capacity. The swap documentation is expected to contain downgrade provisions consistent with DBRS Morningstar’s criteria.

COVID-19 CONSIDERATIONS
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 adverse financial impact on many borrowers. DBRS Morningstar anticipates that delinquencies could continue to rise. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.

DBRS Morningstar analysed the transaction structure in Intex Dealmaker.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 8 September 2021. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/384150/baseline-macroeconomic-scenarios-for-rated-sovereigns and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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 transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted.

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.

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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for these ratings include the following data provided by auxmoney:
-- Loan level data from June 2014 to 31 May 2021;
-- Static default data from Q1 2017 to Q1 2021;
-- Recovery data from April 2014 to May 2021;
-- Dynamic delinquency information from 31 January 2018 to 31 May 2021;
-- Prepayment rates from 30 April 2016 to 31 May 2021;
-- Stratification tables as of 27 September 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 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:

-- Expected Default Rate of 14%: A 25% and 50% increase.
-- Expected loss given default (LGD) of 72.5%: A 25% and 50% increase.

Scenario 1: 25% increase in PD
Scenario 2: 50% increase in PD
Scenario 3: 25% increase in LGD
Scenario 4: 50% increase in LGD
Scenario 5: 25% increase in both PD and LGD
Scenario 6: 25% increase in PD and 50% increase in LGD
Scenario 7: 50% increase in PD and 25% increase in LGD
Scenario 8: 50% increase in both PD and LGD

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

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

Lead Analyst: Ronja Dahmen, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 15 September 2021

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
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.

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.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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