DBRS Morningstar Confirms Ratings on abc SME Lease Germany S.A., acting in respect of its Compartment 8
Consumer/Commercial LeasesDBRS Ratings GmbH (DBRS Morningstar) confirmed its credit ratings on the notes issued by abc SME Lease Germany S.A., acting in respect of its Compartment 8 (the Issuer) as follows:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
The credit ratings on the notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date in August 2032.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the July 2023 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the notes to cover the expected losses at their respective credit rating levels; and
-- No revolving termination events.
The transaction is a revolving securitisation of receivables related to commercial leases extended to small and medium-size enterprises and self-employed individuals in Germany. abcfinance GmbH (abcfinance), ETL Finance GmbH & Co. KG, milon financial services GmbH, Hako Finance GmbH, and Schneidereit Finance GmbH (all either majority- or fully owned subsidiaries of abcfinance) originated and subservice the leases while abcbank GmbH (abcbank) acts as the master servicer. The transaction closed in August 2022 with an initial portfolio of EUR 519.5 million and includes a 24-month revolving period, scheduled to end on the August 2024 payment date.
PORTFOLIO PERFORMANCE
As of the July 2023 payment date, receivables that were 0 to 30 days, 30 to 60 days, and 60 to 90 days delinquent represented 0.8%, 0.2%, and 0.2% of the outstanding collateral balance, respectively, while receivables more than 90 days delinquent amounted to 0.1%. Gross cumulative defaults, including receivables at least 180 days in arrears per the transaction documentation, amounted to 0.4% of the aggregate initial portfolios balance including replenishments, 29.8% of which has been recovered to date.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar updated its base case PD and LGD assumptions to 6.6% and 48.8%, respectively, based on a worst-case portfolio composition as dictated by the concentration limits applicable during the revolving period.
CREDIT ENHANCEMENT
The subordination of the respective junior obligations provides credit enhancement to the rated notes. As of the July 2023 payment date, credit enhancement to the Class A and Class B Notes remained at 15.0% and 13.8%, respectively, unchanged from the initial credit rating date due to the revolving period, which is scheduled to end on the August 2024 payment date, after which the notes are expected to begin amortising.
The transaction benefits from liquidity support provided by a cash reserve, available to cover senior expenses and interest payments due on the Class A and Class B Notes. The reserve was funded to EUR 6.8 million at closing through a subordinated loan granted by abcbank, and has a target balance equal to 1.3% of the outstanding principal balance of the notes, subject to a floor of EUR 3.4 million. As of the July 2023 payment date, the reserve remained at its target balance of EUR 6.8 million.
Citibank Europe plc, Germany branch acts as the account bank for the transaction. Based on DBRS Morningstar’s AA (low) credit rating on Citibank Europe plc, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the credit ratings assigned to the notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar’s credit ratings on the Class A and Class B Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.
DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.
DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.
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/416784/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 credit ratings is the “Master European Structured Finance Surveillance Methodology” (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
Other methodologies referenced in this transaction are listed at the end of this press release.
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 continues to consider potential portfolio migration based on replenishment criteria set forth in the transaction legal documents.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.
For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/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 credit ratings include investor reports and information provided by abcbank as well as loan-level data provided by the European DataWarehouse GmbH.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial credit ratings, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.
This is the first credit rating action since the Initial Rating Date.
The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available at www.dbrsmorningstar.com.
Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of receivables for the Issuer are 6.6% and 48.8%, respectively.
-- The risk sensitivity overview below illustrates the credit ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the credit rating on the Class A Notes would be expected to decrease to AA (low) (sf), ceteris paribus. If the PD increases by 50%, the credit rating on the Class A Notes would be expected to decrease to A (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the credit rating on the Class A Notes would be expected to decrease to BBB (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of AA (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (sf)
Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected credit rating of AA (high) (sf)
-- 50% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD, expected credit rating of AA (high) (sf)
-- 50% increase in PD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected credit rating of A (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected credit rating of A (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected credit rating of BBB (high) (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://registers.esma.europa.eu/cerep-publication/. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
These credit 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: 19 August 2022
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 credit 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 (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Rating CLOs Backed by Loans to European SMEs (10 June 2022) and SME Diversity Model v2.6.1.2,
https://www.dbrsmorningstar.com/research/398252/rating-clos-backed-by-loans-to-european-smes.
-- Rating CLOs and CDOs of Large Corporate Credit (7 February 2023),
https://www.dbrsmorningstar.com/research/409498/rating-clos-and-cdos-of-large-corporate-credit.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023), https://www.dbrsmorningstar.com/research/416730/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (4 July 2023), https://www.dbrsmorningstar.com/research/416784/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.
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