DBRS Confirms Ratings on SCL - Scandinavian Consumer Loans VI

DBRS Ratings GmbH (DBRS) confirmed its ratings on the notes issued by SCL - Scandinavian Consumer Loans VI (the Issuer):

-- Class A Floating-Rate Notes (Class A Notes) at AAA (sf)
-- Class B Floating-Rate Notes (Class B Notes) at AA (low) (sf)
-- Class C Floating-Rate Notes (Class C Notes) at A (sf)
-- Class D Floating-Rate Notes (Class D Notes) at BBB (sf)

The ratings on the Class A and Class B Notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in December 2040. The ratings on the Class C and Class D Notes address the ultimate payment of interest and principal on or before the legal final maturity date.

The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies and defaults as of the September 2019 payment date;
-- Probability of default (PD), loss given default (LGD) and expected losses on the remaining receivables;
-- Current credit enhancement (CE) available to the notes to cover the expected losses at their respective rating levels;
-- No revolving termination has occurred.

The Issuer is a securitisation of a portfolio of promissory notes and claims related to unsecured loans granted to Norwegian consumers originated and serviced by Nordax Bank AB. The transaction closed in October 2017 and incorporates a 24-month revolving period, which is due to end in October 2019 and will be followed by a step up in the note margins in October 2020.

PORTFOLIO PERFORMANCE
As of the September 2019 payment date, loans that were one to two months and two to three months delinquent represented 1.2% and 0.7% of the outstanding portfolio balance, respectively. Gross cumulative defaults amounted to 5.1% of the aggregate original and subsequent portfolios, 5.6% of which have been recovered to date.

PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan review of the remaining pool of receivables and has maintained its base case default rate and LGD assumptions at 10.3% and 56.5%, respectively.

CREDIT ENHANCEMENT
CE to the notes is provided by the subordination of the respective junior notes. As of the September 2019 payment date, CE was at 29.0% for Class A, 20.0% for Class B, 13.0% for Class C and 7.0% for the Class D Notes. The CE available to the rated notes has remained stable since closing because of the inclusion of the revolving period. An additional CE of 0.44% is available to the rated notes from the CE reserve.

The CE reserve is funded and replenished on each payment date prior to the step-up date through the excess spread available in the transaction. It is currently funded to its target level of NOK 10.9 million, which is determined based on the level of outstanding delinquencies in the collateral portfolio.

Additionally, during the revolving period the rated notes benefit from a liquidity reserve equal to 0.5% of the initial portfolio amount, available to cover senior fees and interest on the Class A and Class B Notes initially, subject to principal deficiency ledger conditions. The liquidity reserve does not amortise, and it is currently funded to its revolving period target level of NOK 11.2 million. After the end of the revolving period, the liquidity reserve target amount is expected to increase to 1.25% of the initial portfolio balance, to be funded using excess spread.

Nordea Bank Abp (Norway Branch) acts as the account bank for the transaction. Based on its DBRS Long-Term Senior Debt rating of AA (low), the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS consider the risk arising from the exposure to Nordea Bank Abp (Norway Branch) to be consistent with the ratings assigned to the notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:

All figures are in Norwegian kroner unless otherwise noted.
The principal methodology applicable to the ratings is the “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 cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction, an analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

A review of the transaction’s 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 Global Methodology for Rating Sovereign Governments at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for these ratings are the monthly investor reports provided by Nordax Bank AB (the Servicer).
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 4 October 2018, when DBRS confirmed its ratings on the notes.

The lead analyst responsibilities for this transaction have been transferred to Daniel Rakhamimov.
Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the Base Case):

-- DBRS expected a base case PD and LGD for the revolving collateral pool based on a review of the current assets and the transaction’s eligibility criteria. 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 loans for the Issuer are 10.3% and 56.5%, respectively.
-- The Risk Sensitivity overview below illustrates the 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 rating on the Class A Notes would be expected to fall to AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to fall to AA (low) (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to fall to A (low) (sf).

Class A Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (low) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (low) (sf)

Class B Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (low) (sf)
-- 50% increase in PD, expected rating of BBB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (low) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (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 (sf)

Class C Notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of A (low) (sf)
-- 50% increase in LGD, expected rating of BBB (high) (sf)
-- 25% increase in PD, expected rating of BBB (high) (sf)
-- 50% increase in PD, expected rating of BBB (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 (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (sf)

Class D Risk Notes Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BBB (low) (sf)
-- 50% increase in PD, expected rating of BB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BB (low) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of B (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: Daniel Rakhamimov, Senior Financial Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 11 September 2017

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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259
Ratings issued and monitored by DBRS Ratings GmbH are noted as such on the DBRS website; however,
the language and related statements in previously published press releases in respect of the relevant
ratings will not be changed retroactively and will remain as part of DBRS’s historical record. The ratings
issued and monitored in the European Union are marked as such in their respective rating tables. As part
of this transfer, these markings will remain unchanged on all active ratings related to the Issuer.

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Interest Rate Stresses for European Structured Finance Transactions

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 info@dbrs.com.