DBRS Ratings GmbH (DBRS Morningstar) confirmed the A (high) (sf) rating on the Class A Notes issued by Geldilux-TS-2015 S.A. (the Issuer).
The rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date in December 2024.
The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of level of delinquencies and defaults, as of the June 2020 payment date.
-- Base case probability of default (PD) and default and recovery rates on the receivables.
-- The current available credit enhancement to the Class A Notes to cover the expected losses assumed at the A (high) (sf) rating level.
-- The current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
The transaction is a cash-flow-revolving securitisation collateralised by a portfolio of short-term loans (maturities ranging from a few days to one year) to large corporates, small and medium-size enterprises, entrepreneurs, self-employed individuals, and private individuals in Germany. The loans were originated under the UniCredit EGON Loan Program (EGON), whereby the loans (bullet in interest and principal) are arranged by UniCredit Bank AG (UCB; the Originator) and extended by UniCredit Luxembourg S.A. (UCL or the Seller), which merged with UCB in July 2018.
The transaction closed in July 2015 and includes a revolving period scheduled to end in June 2022 (it was extended following a restructuring in 2018), during which the Seller has the option to sell new EGON loans to the Issuer. Given the short-term nature of the loans, the portfolio is replenished on a daily basis using the same random procedure used at closing, subject to loan Eligibility Criteria and Portfolio Limits. The purchase price of new loans is usually paid by setting off the principal proceeds collected by the Transaction Servicer and Servicer (UCL and UCB, respectively) during the previous day. To date, all performance and replenishment triggers have passed.
The portfolio’s performance remains stable since the last review. As of May 2020, the cumulative defaulted loans ratio (more than 29 days overdue) was 0.17%, up from 0.08% in May 2019.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
As the transaction is still revolving and the performance remains within DBRS Morningstar’s expectations, DBRS Morningstar maintained the base-case PD rate assumption for the collateral pool at 1.42%. The base case PD has been updated to 1.78% following coronavirus adjustments.
The credit enhancement of the Class A Notes is provided in the form of subordination and remains stable at 14.5% because of the revolving period.
Citibank N.A., London Branch is the main Account Bank provider of the transaction. Based on the private rating of the Account Bank, the downgrade provisions outlined in the transaction documents and structural mitigants, DBRS Morningstar considers the risk arising from exposure to the Account Bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
UCB replaced UCL as swap counterparty to the transaction following the merger of UCL and UCB. The DBRS Morningstar private rating of UCB meets the swap counterparty rating requirements, given the rating assigned to the Class A Notes, as described in DBRS Morningstar’s “Derivative Criteria for European Structured Finance Transactions” methodology.
DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that payment holidays and delinquencies may arise in the coming months for many SME transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus.
For this transaction, DBRS Morningstar increased the expected default rate for obligors in certain industries based on their perceived exposure to the adverse disruptions of the coronavirus.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 18 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated Structured Credit transactions in Europe. For more details please see, https://www.dbrsmorningstar.com/research/361098/european-structured-credit-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating CLOs Backed by Loans to European SMEs” (8 July 2019).
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 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 at: http://www.dbrsmorningstar.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.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include reports and information provided by UCB and loan-by-loan data from 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 rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar 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 19 July 2019, when DBRS Morningstar confirmed the rating on the Class A Notes at A (high) (sf).
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- PD Rates Used: Base case PD of 1.78%, a 10% and 20% increase on the base case PD.
-- Recovery Rates Used: Base case recovery rates of 26.25% at the A (high) (sf) stress level for the Class A Notes, a 10% and 20% decrease in the base case recovery rates.
DBRS Morningstar concludes that a hypothetical increase of the base case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would lead to a confirmation of the Class A Notes at A (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a confirmation of the Class A Notes at A (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:
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Alfonso Candelas, Senior Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 30 July 2015
DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Rating CLOs Backed by Loans to European SMEs (8 July 2019) and SME Diversity Model v.188.8.131.52, https://www.dbrsmorningstar.com/research/347781/dbrs-publishes-updated-rating-clos-backed-by-loans-to-european-smes-methodology
-- Rating CLOs and CDOs of Large Corporate Credit (28 February 2020),
-- Master European Structured Finance Surveillance Methodology (22 April 2020),
-- Cash Flow Assumptions for Corporate Credit Securitizations (28 February 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019), https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.