Press Release

DBRS Morningstar Finalises Provisional Ratings on SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2023-1

Consumer Loans & Credit Cards

August 24, 2023

DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings on the Class A, Class B, Class C, Class D, Class E, and Class F Notes (together, the Rated Notes) issued by SC Germany S.A., acting on behalf and for the account of its Compartment Consumer 2023-1 (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 A (low) (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (high) (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 ratings on the Class B Notes, Class C Notes, Class D Notes, and Class E Notes address the ultimate payment of interest, the timely payment of interest when most senior, and the ultimate repayment of principal by the legal final maturity date. The rating on the Class F Notes addresses the ultimate payment of interest and the ultimate repayment of principal by the legal final maturity date.

RATING RATIONALE
The Rated Notes are backed by a portfolio of fixed-rate unsecured amortising personal loans granted without a specific purpose to private individuals domiciled in Germany and serviced by Santander Consumer Bank AG (SCB; the originator, seller, and servicer).

DBRS Morningstar based its ratings on a review of the following analytical considerations:
-- The transaction's capital structure, including form and sufficiency of available credit enhancement;
-- Available credit enhancement in the form of subordination, a liquidity reserve account, and excess spread;
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s projected cumulative net loss assumption 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;
-- SCB’s capabilities with regard to originations, underwriting, servicing, and its financial strength;
-- 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 Federal 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 includes a 12-month scheduled revolving period, during which the Issuer is able to purchase additional loan receivables on each monthly payment date, as long as they satisfy the eligibility criteria and the transaction concentration limits.

The transaction allocates payments according to separate interest and principal priorities of payments and benefits from an amortising EUR 11.7 million cash reserve (corresponding with 1.5% of the initial Rated Notes balance), subject to a floor of EUR 3.9 million (corresponding with 0.5% of the initial Rated Notes balance). The liquidity reserve will be replenished in two different positions in the interest waterfalls and can partially provide credit enhancement to the transaction: the first part can cover shortfalls in senior expenses, swap payments, and interest on the Class A Notes and, if not deferred, interest on the Class B through Class F Notes, while the second part can be used to clear the remaining shortfalls and any debit in the principal deficiency ledgers. The excess reserve amount could also cover items below the reserve replenishment, such as deferred interest on the junior notes and Class F Notes principal.

The repayment of the Class A, Class B, Class C, Class D, and Class E Notes after the revolving period ends will be on a pro rata basis, unless a sequential redemption trigger is breached, in which case the repayment will be in nonreversible sequential order. The Class F Notes will begin amortising during the revolving period from the first payment date using available excess spread pursuant to the interest priority of payments, with a target amortisation schedule of 20 equal instalments.

The Rated Notes pay a floating interest rate indexed to one-month Euribor whereas the portfolio comprises fixed-rate loans. The interest rate risk arising from the mismatch between the Rated Notes and the portfolio is hedged through an interest rate swap agreement with an eligible counterparty.

The portfolio concentration limits during the revolving period require the weighted-average portfolio yield to be at least 7.3%.

COUNTERPARTIES
The Bank of New York Mellon, Frankfurt Branch (BNY Mellon) acts as the account bank for the transaction. Based on DBRS Morningstar’s private rating on BNY Mellon, the downgrade provisions outlined in the transaction documents, and other mitigating factors in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the ratings assigned to the Rated Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) acts as the swap counterparty for the transaction. DBRS Morningstar has a Long-Term Issuer Rating of AA (low) on DZ Bank, which is consistent with DBRS Morningstar’s criteria with respect to its role.

DBRS Morningstar’s credit ratings on the Rated Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the Rated Notes are the related interest amounts, deferred interest amounts, and principal amounts.

DBRS Morningstar’s credit ratings do 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. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 rating 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.

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 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.

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.

The sources of data and information used for these credit ratings include the historical data provided by the originator through the arranger as below:
-- Quarterly static cumulative default data from Q2 2006 to Q1 2023;
-- Quarterly static cumulative recovery data from Q2 2006 to Q1 2023;
-- Monthly dynamic delinquencies from January 2014 to March 2023;
-- Monthly dynamic prepayments from January 2014 to March 2023.

DBRS Morningstar also received a set of stratification tables and loan-by-loan data in relation to the collateral pool as of 31 July 2023 and its related contractual amortisation schedule.

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.

These credit ratings concern newly issued financial instruments. These are the first DBRS Morningstar credit ratings on these financial instruments.

This is the first credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating:
-- Expected default rate: 4.75%
-- Expected loss given default (LGD): 84%

Scenario 1: A 25% increase in the expected default
Scenario 2: A 50% increase in the expected default
Scenario 3: A 25% increase in the expected LGD
Scenario 4: A 25% increase in the expected default and a 25% increase in the expected LGD
Scenario 5: A 50% increase in the expected default and a 25% increase in the expected LGD
Scenario 6: A 50% increase in the expected LGD
Scenario 7: A 25% increase in the expected default and a 50% increase in the expected LGD
Scenario 8: A 50% increase in the expected default and a 50% increase in the expected LGD

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

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: David Lautier, Senior Vice President
Initial Rating Date: 10 July 2023

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.

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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