DBRS Ratings Limited (DBRS Morningstar) finalised its provisional ratings on the notes issued by Aurorus 2020 B.V. (the Issuer) as follows:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (sf)
-- Class C Notes at A (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BB (sf)
-- Class F Notes at B (sf)
DBRS Morningstar did not rate the Class G Notes, Class X Notes, or Class RS Notes issued in this transaction.
The ratings on the Class A Notes and Class B Notes address the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date. The ratings on the Class C Notes, Class D Notes, Class E Notes, and Class F Notes address the ultimate payment (then timely as most-senior class) of interest and the ultimate repayment of principal by the legal final maturity date, in accordance with the terms of the notes.
The Class A to Class G notes are collateralised by the receivables of unsecured revolving loans, fixed-rate instalment loans, and credit cards originated and serviced by Qander Consumer Finance B.V. (Qander or the Seller) in the Netherlands. The Class X Notes are not collateralised by loan receivables and will be repaid through the available excess spread. The transaction includes a 38-month revolving period where the receivables of new accounts can be added to the pool until October 2023, subject to the occurrence of an early amortisation event.
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;
-- Relevant credit enhancement in the form of subordination, a reserve fund, and excess spread;
-- Credit-enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss assumption under various stressed cash flow assumptions for the notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Qander’s capabilities with regard to originations, underwriting, and servicing as well as the availability of a named backup servicer at closing;
-- 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;
-- The sovereign rating of the Kingdom of the Netherlands, 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.
The transaction incorporates separate revenue and redemption waterfalls that allocate the available funds including collections representing interest, principal, and recoveries from defaulted receivables. The notes amortise sequentially while the transaction’s revenue priority of payments incorporates a principal deficiency ledger for each class of notes, whereby available revenue funds are used to cover realised losses.
A reserve account has been funded through the issuance proceeds of the Class X and Class RS notes. The balance of the reserve is initially equal to 0.9% of the original balance of the Class A, Class B, Class C, and Class D notes. Subsequently, following the revolving period, the target increases to 1.5% of the Class A, Class B, Class C, and Class D notes. It is nonamortising, and, following the redemption of the Class D Notes, it becomes available to pay interest on the most senior class of notes outstanding subject to no principal deficiency being recorded in the applicable note-specific ledger.
The reserve account target is zero only upon the earlier of the final maturity date and when the Class G Notes have been redeemed in full. In the absence of liquidity support from the reserve account and subject to principal deficiency ledger conditions, principal funds can be used to pay interest on the Class A and Class B notes. Following their redemption, and still subject to principal deficiency ledger conditions, principal can be used to pay interest on the most senior class of notes outstanding.
DBRS Morningstar analysed the transaction cash flow structure in Intex DealMaker.
The Issuer collection account, reserve account, replenishment account, and the swap cash collateral account are held by ABN AMRO Bank N.V. DBRS Morningstar's Long-Term Issuer rating of ABN AMRO Bank is at A (high) with a Stable trend. The transaction documents contain downgrade provisions consistent with DBRS Morningstar criteria.
BNP Paribas (BNPP) has been appointed as the interest rate swap counterparty for the transaction. DBRS Morningstar has a Long-Term Senior Debt rating of AA (low) and a Long Term Critical Obligations Rating of AA (high) on BNPP. The hedging documents contain downgrade provisions consistent with DBRS Morningstar criteria.
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 delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis to expected performance as a result of the global efforts to contain the spread of the coronavirus.
On 16 April 2020, the DBRS Morningstar Sovereign group released a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 22 July 2020. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/364319/dbrs-morningstar-global-macroeconomic-scenarios-july-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
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 on DBRS Morningstar considerations for European ABS transactions and Coronavirus Disease (COVID-19), please see the following commentary: https://www.dbrsmorningstar.com/research/360734.
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 ratings is “Rating European Consumer and Commercial
Asset-Backed Securitisations” (13 January 2020).
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.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://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 Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments. The sources of data and information used for these ratings include the Seller, Qander, and the Arranger, Deutsche Bank AG.
DBRS Morningstar received the following data and information:
-- Dynamic receivables balance, payment, delinquency, charge-off, origination, yield, and recovery data (on a static basis) for each product type.
-- Static default and recovery balance and account data for each product type.
-- A pool cut off the portfolio with associated stratification tables as at 31 July 2020.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
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 these ratings 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.
These ratings concern a newly issued financial instrument. These are the first DBRS Morningstar ratings on these financial instruments.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios for a worst-case pool composition, as compared with the parameters used to determine the ratings.
-- Expected default rate: 8.1%
-- Expected recovery rate: 25.0%
-- Loss given default (LGD) rates: 82.5%, 81.5%, 80.0%, 78.5%, 77.0%, and 75.5% for the AAA (sf), AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) scenarios, respectively.
Scenario 1: A 25% increase in the expected default rate.
Scenario 2: A 50% increase in the expected default rate.
Scenario 3: A 25% increase in the LGD.
Scenario 4: A 25% increase in the expected default rate and a 25% increase in the LGD.
Scenario 5: A 50% increase in the expected default rate and a 25% increase in the LGD.
Scenario 6: A 50% increase in the LGD.
Scenario 7: A 25% increase in the expected default rate and a 50% increase in the LGD.
Scenario 8: A 50% increase in the expected default rate and a 50% increase in the LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios will be:
-- Class A Notes: AA (sf), AA (sf), AA (high) (sf), AA (sf), A (high) (sf), AA (high) (sf), AA (sf), A (high) (sf).
-- Class B Notes: A (high) (sf), A (sf), AA (low) (sf), A (sf), BBB (high) (sf), AA (low) (sf), A (sf), BBB (high) (sf).
-- Class C Notes: BBB (high) (sf), BBB (sf), A (low) (sf), BBB (sf), BB (high) (sf), A (low) (sf), BBB (sf), BB (high) (sf).
-- Class D Notes: BB (high) (sf), BB (sf), BBB (low) (sf), BB (low) (sf), B (sf), BBB (low) (sf), BB (low) (sf), B (low) (sf).
-- Class E Notes: BB (low) (sf), B (low) (sf), BB (low) (sf), B (low) (sf), Below B (low) (sf), BB (low) (sf), B (low) (sf), Below B (low) (sf).
-- Class F Notes: Below B (low) (sf), Below B (low) (sf), B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf), Below B (low) (sf).
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.
Lead Analyst: Alex Garrod, Senior Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 2 July 2020
DBRS Ratings Limited
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Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960.
The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (13 January 2020),
-- Rating European Structured Finance Transactions Methodology (21 July 2020),
-- Legal Criteria for European Structured Finance Transactions (11 September 2019),
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019),
-- 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.
-- 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.
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019),
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 firstname.lastname@example.org.