DBRS Ratings GmbH (DBRS) confirmed the following ratings on the Class A, Class B and Class C Notes (the Notes) issued by KMU Portfolio S.A., Compartment 2015-1 (the Issuer):
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and cumulative net losses, as of the March 2019 payment date;
-- No Early Amortisation Events have occurred;
-- The current levels of credit enhancement (CE) to the Notes to cover their expected losses at their respective rating levels.
The ratings of the Notes address the timely payment of interest and the ultimate payment of principal on or before the Legal Final Maturity Date in March 2031.
KMU Portfolio S.A., Compartment 2015-1 is a securitisation of German commercial loans originated by akf bank GmbH & Co. KG (akf bank). The EUR 400.0 million portfolio, as of the March 2019 payment date, consisted of auto loans (27.0% of the outstanding discounted principal balance), commercial vehicle loans (29.9%), machinery loans (14.4%), other equipment loans (27.7%) and ship loans (0.9%). The pool contains 27.1% of loans that include a balloon payment element. The outstanding discounted principal balance of the balloon part is 14.5%, and the concentration limit further stipulates that this must remain below 15.0%.
The transaction was amended on the April 2017 payment date. The amendments included the following changes:
-- An extension of the revolving period by 20 months to 56 months, expected to terminate in May 2020; combined with an extension of the Legal Final Maturity Date to March 2031;
-- An increase in the portfolio size to EUR 400.0 million;
-- An increase in the required balance of the cash reserve to EUR 4.0 million from EUR 2.5 million;
-- An increase in the required balance of the commingling reserve to EUR 32.0 million from EUR 20 million;
-- Reduction in coupon on the Class B, Class C and Class D Notes;
-- Conservative adjustment of existing and addition of new controls to the concentration limits.
The portfolio is performing in line with DBRS’s expectations. As of March 2019, the gross cumulative default ratio was 1.0% of the original portfolio plus all additional receivables, of which 69.4% has been recovered so far. The 30+ delinquency ratio was 0.3% of the discounted principal balance.
REVOLVING PERIOD & CONCENTRATION LIMITS
As of the March 2019 payment date, no performance triggers have been breached, which if breached would cause the revolving period to mature early. To further mitigate the deterioration of the pool, the transaction permits certain concentration limits on the additional portfolios purchased on each payment date. DBRS considered a worst-case portfolio composition in its analysis.
CE is provided primarily by the subordination of the respective junior obligations; however, the cash reserve may be used either in the event of Issuer default or at final maturity. As the transaction is in its revolving period, the CE remains stable at 23.0% for the Class A Notes, 12.0% for the Class B Notes and 6.5% for the Class C Notes.
At closing, EUR 95.0 million of Class A Notes were issued, with the transaction documents allowing a ramp-up to a maximum Class A balance of EUR 195.0 million, which was subsequently reached on the March 2016 payment date. The amendment permited a similar ramp-up mechanism, and an additional EUR 90.0 million was issued on the April 2017 payment date. The maximum balance of Class A Notes of EUR 312.0 million, along with the respective portfolio size of EUR 400.0 million, was reached in November 2017.
The transaction closed with the support of a EUR 2.5 million cash reserve, available to cover shortfalls on senior fees and the interest on the Notes. To maintain the same proportional amount of CE to the Notes, this reserve was increased to EUR 4.0 million in April 2017. It will amortise with the Notes at the end of the revolving period when it will have a target level equal to 1.0% of the aggregated balance of all rated and unrated Notes with a floor of EUR 0.5 million. Currently, this account stands at its required amount of EUR 4.0 million and has not registered any shortfalls since closing.
A commingling reserve is also available to mitigate any loss resulting from Servicer insolvency. It has been at its target amount of EUR 32.0 million since April 2017, before which its required balance was EUR 20.0 million. The reserve will amortise following the revolving period with a target amount equal to the sum of the principal collections scheduled to be received over the two succeeding months plus 2.5% of the aggregate principal balance.
Should the amount of any potential set-off claims exceed 0.1% of the aggregate principal balance, or the unsecured, unsubordinated and unguaranteed obligations of akf bank breach specified rating thresholds, akf bank shall deposit cash collateral equal to the Set-Off Risk Amount. As of the March 2019 payment date, none of the securitised receivables had any associated set-off risk.
Since the portfolio receivables and the Notes pay a fixed coupon, there is a natural hedge in the transaction structure. Further, the eligibility criteria permit only fixed-rate-paying loan receivables to be purchased in each subsequent portfolio.
The Bank of New York Mellon, Frankfurt Branch (BNY Mellon Frankfurt) acts as the Account Bank for the transaction. Based on DBRS private rating of BNY Mellon Frankfurt, the downgrade provisions outlined in the transaction documents, and structural mitigants, DBRS consider the risk arising from the exposure to BNY Mellon Frankfurt, to be consitent with the rating assigned to the Notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “Master European Structured Finance Surveillance Methodology”.
DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset and a cashflow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis continues to be based on the worst-case 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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.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 Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/333487/rating-sovereign-governments.pdf.
The sources of data and information used for these ratings include monthly investor reports provided by akf bank.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 12 April 2018, when DBRS confirmed the ratings of Class A, B and C Notes at AAA (sf), AA (low) (sf) and A (low) (sf), respectively.
The lead analyst responsibilities for this transaction have been transferred to Alfonso Candelas.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of the changing the transaction parameters on these ratings, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 are 5.3% and 81.1%, respectively.
For example, if the LGD increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), ceteris paribus. If the PD increases by 50%, the rating of the Class A Notes would be expected to decrease to AA (high) (sf), ceteris paribus. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to decrease to AA (low) (sf), ceteris paribus.
Class A Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AA (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AA (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (low) (sf)
Class B Notes risk sensitivity:
-- 25% increase in LGD, expected rating of AA (low) (sf)
-- 50% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD, expected rating of A (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
Class C Notes risk sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Vito Natale, Managing Director
Initial Rating Date: 13 August 2015
DBRS Ratings GmbH
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Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at firstname.lastname@example.org.