Press Release

DBRS Morningstar Finalises Provisional Ratings on Fortuna Consumer Loan ABS 2023-1 Designated Activity Company

Consumer Loans & Credit Cards

March 02, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the following notes issued by Fortuna Consumer Loan ABS 2023-1 Designated Activity Company (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 (high) (sf)
-- Class E Notes at BB (high) (sf)
-- Class F Notes at CCC (sf)

DBRS Morningstar also discontinued its provisional rating of BBB (sf) on the Class X Notes at the Issuer’s request and did not rate the Class G Notes also issued in this transaction.

The finalised ratings of the Class D and Class E Notes are one and two notches higher, respectively, than the provisional ratings previously assigned due to the updated collateral pool, the overall lower notes margins, and the now subordinated position of Class X Notes interest and redemption amounts in the pre-enforcement interest waterfalls. These changes result in higher available funds to pay deferred interest on the subordinated notes and improved the cashflow analysis of the Class D and Class E Notes in the respective rating stress scenarios.

DBRS Morningstar also revised its expected default rate for the portfolio to 13.3% after consideration of the final collateral pool and the potential portfolio migration over the scheduled revolving period; however, this revision did not affect the ratings assigned.

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 of the Class C, Class D, Class E and Class F Notes address the ultimate (but timely when most senior) payment of interest and the ultimate repayment of principal by the legal final maturity date.

The transaction is a securitisation of fixed-rate, unsecured, amortising consumer loans granted to individuals domiciled in Germany and brokered through auxmoney GmbH (auxmoney) in co-operation with Süd-West-Kreditbank Finanzierung GmbH (SWK) as the nominal originator. CreditConnect GmbH (CreditConnect), a fully owned affiliate of auxmoney, will act as the initial servicer.

The ratings are based on the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Credit enhancement levels that are deemed sufficient to support DBRS Morningstar's projected cumulative net loss assumptions under various stressed scenarios;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors;
-- DBRS Morningstar’s operational risk review of SWK and auxmoney's capabilities with regard to originations and underwriting;
-- CreditConnect's capabilities with regard to servicing;
-- The transaction parties’ financial strength regarding their respective roles;
-- The credit quality, diversification of the collateral, and historical and projected performance of auxmoney’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.

TRANSACTION STRUCTURE
The transaction has a scheduled revolving period of 12 months with separate interest and principal waterfalls for the available distribution amount. After the end of revolving period, the notes will be repaid sequentially, except for the Class X Notes that will start redemption during the revolving period prior to other classes of notes unless there is a breach of an early termination event.

The transaction benefits from an amortising liquidity reserve funded at closing by the issuance proceeds of the Class X Notes, which is only available to the Issuer in restricted scenarios where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, interests on the Class A Notes and, if not deferred, the interest payments on other classes of rated notes. The excess reserve amount during the pre-enforcement period will be part of the interest available amounts.

Principal available funds may be used to cover certain senior expenses and interest shortfalls which would be recorded in the transaction’s PDL in addition to the defaulted receivables. The transaction uses excess available revenue amount to cure PDL debits and also includes interest deferral triggers on the subordinated classes of rated notes, conditional on the PDL debit amount and seniority of the notes.

The Issuer entered into an interest rate cap at closing to mitigate the interest rate mismatch risk in the transaction between the fixed rate collateral and floating rate notes. The cap notional amount is based on the outstanding amount of the floating-rate notes and certain prepayment and default assumptions.

COUNTERPARTIES
Citibank Europe plc (Citibank Europe) is the account bank for the transaction. DBRS Morningstar has Long-Term Issuer Rating of AA (low) on Citibank Europe, which meets its criteria to act in such capacity. The transaction documents contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

BNP Paribas SA (BNP Paribas) is the interest rate cap provider for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of AA (low) on BNP Paribas, which meets its criteria to act in such capacity. The transaction documents also contain downgrade provisions consistent with DBRS Morningstar’s criteria.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the transaction structure in 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” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

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.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis considers potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.

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/401817/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 or through the arranger, BNP Paribas SA:
-- Loan-level data from January 2014 to December 2022;
-- Static default data from January 2017 to December 2022;
-- Recovery data from June 2017 to November 2022;
-- Dynamic delinquency information from January 2018 to December 2022;
-- Prepayment rates from July 2017 to December 2022; and
-- Stratification tables as of 22 February 2023.

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.

Sensitivity Analysis: 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 (the base case):

-- Expected default rate of 13.3%: A 25% and 50% increase.
-- Expected loss given default (LGD) of 72.5%: A 25% and 50% increase.

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

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

DBRS Morningstar did not conduct sensitivity analysis on the Class F 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: Roberto Perez, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 6 February 2023

DBRS Ratings GmbH, Sucursal en España
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Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500

DBRS Ratings GmbH
Neue Mainzer Straße 75
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.

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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