Morningstar DBRS Finalises Provisional Credit Ratings on Fortuna Consumer Loan ABS 2024-1 Designated Activity Company

DBRS Ratings GmbH (Morningstar DBRS) finalised its provisional credit ratings on the following notes (collectively, the Rated Notes) issued by Fortuna Consumer Loan ABS 2024-1 Designated Activity Company (the Issuer):

-- 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 B (high) (sf)

Morningstar DBRS did not assign a credit rating to the Class G or Class X Notes (together with the Rated Notes, the Notes) also issued in this transaction.

The credit ratings of 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 credit 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.

CREDIT RATING RATIONALE
Morningstar DBRS’ credit ratings are based on the following analytical considerations:
-- The transaction’s structure, including the form and sufficiency of available credit enhancement to withstand stressed cash flow assumptions and repay the Issuer’s financial obligations according to the terms under which the Rated Notes are issued.
-- The credit quality of auxmoney GmbH's (auxmoney) portfolio, the diversification of the collateral, its historical performance, and Morningstar DBRS’ projected performance under various stress scenarios.
-- Morningstar DBRS’ operational risk review of auxmoney's capabilities with regard to the originations and underwriting.
-- CreditConnect GmbH's (CreditConnect) capabilities with respect to the servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The consistency of the transaction’s structure with Morningstar DBRS’ “Legal Criteria for European Structured Finance Transactions” and “Derivative Criteria for European Structured Finance Transactions” methodologies.
-- The sovereign credit rating on the Federal Republic of Germany, currently at AAA with a Stable trend.

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

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 the scheduled revolving period, the Rated Notes will enter into a pro rata redemption period if no sequential amortisation trigger event occurs, for example when the Class G principal deficiency ledger (PDL) exceeds 0.25% of the outstanding principal balance of the receivables or when the cumulative default ratio is higher than pre-determined thresholds. The pro rata amortisation amounts are based on the percentages of the outstanding amount of each class of Rated Notes minus the related class PDL divided by the aggregate amount. After the breach of a sequential redemption trigger, the Notes (excluding the Class X Notes) will be repaid sequentially.

The Class X Notes will start redemption immediately after closing in the interest waterfalls until a post-enforcement event occurs.

The transaction benefits from an amortising liquidity reserve fully funded at closing by the issuance proceeds. The liquidity reserve is available to the Issuer in scenarios where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, senior swap payments, interest payments on the Class A Notes and, if not deferred, interest payments on other classes of Rated Notes.

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 includes a mechanism in the interest waterfalls to cure PDL debits and interest deferral triggers on the subordinated classes of notes (excluding the Class X Notes), conditional on the PDL debit amount and seniority of the notes.

The transaction has an interest rate swap to mitigate the interest rate mismatch risk between the fixed-rate collateral and the Rated Notes. The swap notional amount is based on a scheduled amount derived from certain collateral prepayment and default assumptions.

TRANSACTION COUNTERPARTIES
Elavon Financial Services DAC (Elavon) is the account bank for the transaction. Morningstar DBRS has a private credit rating on Elavon, which meets the criteria to act in such capacity. The transaction documents contain downgrade provisions consistent with Morningstar DBRS’ criteria.

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

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
Morningstar DBRS used a lifetime expected gross default of 11.9%, reflecting the concentration limits of score classes and the potential portfolio migration during the scheduled revolving period. On the other hand, Morningstar DBRS maintained the expected recovery rate at 27.5%, unchanged from Fortuna Consumer Loan ABS 2023-1 DAC.

Morningstar DBRS’ 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 and the Initial Note Principal Amount.

Morningstar DBRS’ credit ratings on the Rated Notes also addresses the credit risk associated with the increased rate of interest applicable to the Rated Notes if the Rated Notes are not redeemed on the first optional redemption date as defined in and in accordance with the applicable transaction documents.

Morningstar DBRS’ credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Morningstar DBRS 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: “Rating European Consumer and Commercial Asset-Backed Securitisations” (8 January 2024), https://dbrs.morningstar.com/research/426219/rating-european-consumer-and-commercial-asset-backed-securitisations.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS 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” methodology at: https://dbrs.morningstar.com/research/421590/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these credit ratings include the following data provided by auxmoney or through one of the arrangers, BNP Paribas:
-- Loan-level data from January 2014 to November 2023;
-- Static default data from January 2017 to November 2023;
-- Recovery data from June 2017 to October 2023;
-- Dynamic delinquency data from January 2018 to November 2023;
-- Prepayment data from May 2016 to November 2023; and
-- Stratification tables as of 26 January 2024.

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

Morningstar DBRS was supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS 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 new financial instruments. These are the first Morningstar DBRS credit ratings on these financial instruments.

This is the credit rating action since the Initial Credit Rating Date.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit ratings, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit ratings (the base case):

-- Expected default rate of 11.9%: 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.

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

For further information on Morningstar DBRS’ 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 Morningstar DBRS’ 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: Roberto Perez, Assistant Vice President
Credit Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Credit Rating Date: 9 January 2024

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

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://dbrs.morningstar.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (8 January 2024),
https://dbrs.morningstar.com/research/426219/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (11 December 2023),
https://dbrs.morningstar.com/research/425149/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (30 June 2023),
https://dbrs.morningstar.com/research/416730/legal-criteria-for-european-structuredfinancetransactions.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2023),
https://dbrs.morningstar.com/research/420572/operational-risk-assessment-for-europeanstructured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2023),
https://dbrs.morningstar.com/research/420573/operational-risk-assessment-for-europeanstructured-finance-originators.
-- Interest Rate Stresses for European Structured Finance Transactions (15 September 2023),
https://dbrs.morningstar.com/research/420602/interest rate-stresses-for-european-structured-finance-transactions.
-- Derivative Criteria for European Structured Finance Transactions (18 September 2023),
https://dbrs.morningstar.com/research/420754/derivative-criteria-for-european-structured-finance-transactions.
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/278375.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.