Press Release

DBRS Morningstar Assigns Provisional Rating to Silver Arrow Athlon NL 2021-1 B.V.

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May 10, 2021

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of AAA (sf) to the Class A Notes to be issued by Silver Arrow Athlon NL 2021-1 B.V. (the Issuer). The Issuer is a private limited liability company incorporated under the laws of the Netherlands.

DBRS Morningstar did not assign a provisional rating to the Class B Notes expected to be issued in this transaction. The rating of the Class A Notes addresses the timely payment of interest and the ultimate repayment of principal by the legal final maturity date.

This transaction represents the issuance of notes backed by a revolving pool of lease installments and residual value (RV) proceeds related to auto lease agreements granted by Athlon Car Lease Nederland B.V. (Athlon or the originator) to corporate, small and medium-size enterprise (SME), and entrepreneur clients in the Netherlands. The portfolio is serviced by Athlon.

The transaction incorporates a one-year revolving period, during which the originator may sell additional lease installments and RV proceeds, subject to eligibility criteria, concentration limits, performance triggers, and other conditions set out in the transaction documents.

The transaction represents the first securitisation transaction backed by auto lease agreements by Athlon following its acquisition by Daimler AG in 2016.

DBRS Morningstar based its rating 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, reserve funds, and excess spread;
-- Credit-enhancement levels are sufficient to support DBRS Morningstar’s projected cumulative net loss and residual value loss under various stressed cash flow assumptions for the Class A Notes;
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested;
-- Athlon’s capabilities with regard to originations, underwriting, and servicing and its financial strength;
-- 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, the presence of legal opinions that are expected to address the true sale of the assets to the Issuer.

TRANSACTION STRUCTURE
The transaction incorporates a single waterfall that facilitates the distribution of the available distribution amount. The notes will amortise sequentially, subject to principal redemption amounts, and funds are not allocated to the redemption of principal of the Class B Notes until after the Class A Notes have been redeemed in full.

A general reserve, initially set at 0.5% of the Class A Notes, will be available to the structure. The transaction documents foresee a floor of EUR 2.0 million for the general reserve. The reserve provides liquidity to the Class A Notes while providing credit enhancement only in an accelerated amortisation scenario.

All underlying contracts are fixed rate while floating-rate rated notes have been issued. The Class A Notes are indexed to one-month Euribor. Interest rate risk for the Class A Notes is mitigated through an interest rate swap provided by Skandinaviska Enskilda Banken AB (Skandinaviska).

COUNTERPARTIES
The Issuer bank account is held at Elavon Financial Services DAC (Elavon). DBRS Morningstar privately rates Elavon and concluded that it meets the minimum criteria to act in its capacity as the account bank. The transaction is expected to contain downgrade provisions relating to the account bank consistent with DBRS Morningstar’s criteria.

Skandinaviska is the swap counterparty for the transaction. The DBRS Morningstar public Long-Term Issuer Rating on Skandinaviska is at A (high) with a Stable trend. The hedging documents are expected to contain downgrade provisions consistent with DBRS Morningstar’s criteria.

The transaction structure was analysed in Intex Dealmaker.

CORONAVIRUS CONSIDERATIONS
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 continue to increase in the coming months for many structured finance transactions, some meaningfully. The rating is 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 applied a moderate haircut to its expected recovery rate and adjusted annualised default rates associated with lessees in certain sectors.

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 last updated on 17 March 2021. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/375376/global-macroeconomic-scenarios-march-2021-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.

On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details, please see: https://www.dbrsmorningstar.com/research/360734/european-abs-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 on DBRS Morningstar considerations for European structured credit transactions and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar commentary: https://www.dbrsmorningstar.com/research/361098.

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 the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (3 September 2020).

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.

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 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 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 this rating include the originator directly or through the arranger, ING Bank N.V.

DBRS Morningstar received the following data and information:
-- Static quarterly cumulative gross loss data from Q1 2015 to Q4 2020;
-- Static quarterly cumulative net loss data from Q1 2015 to Q4 2020;
-- Dynamic quarterly delinquency data from Q1 2015 to Q4 2020;
-- Dynamic monthly early termination data from January 2015 to December 2020;
-- Quarterly vehicle realisation proceeds data from Q1 2010 to Q4 2020;
-- Annual vehicle realisation proceeds data from 2010 to 2020, split by early terminated, regularly terminated, and extended contracts;
-- Dynamic quarterly originations from Q1 2015 to Q4 2020;
-- Pool stratification tables and amortisation profile as at 31 March 2021.

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 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.

This rating concerns an expected to be issued new financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

Sensitivity Analysis: 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):

-- Expected default: 2.4%.
-- Expected recovery rate: 65.0%.
-- Loss given default (LGD): 61.0% for the AAA (sf) scenario.
-- RV loss: 40.0% for the AAA (sf) scenario.

Scenario 1: A 25% increase in the expected default and LGD.
Scenario 2: A 50% increase in the expected default and LGD.
Scenario 3: A 25% increase in the RV loss.
Scenario 4: A 25% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 5: A 50% increase in the expected default and LGD and a 25% increase in the RV loss.
Scenario 6: A 50% increase in the expected RV loss.
Scenario 7: A 25% increase in the expected default and LGD and a 50% increase in the RV loss.
Scenario 8: A 50% increase in the expected default and LGD and a 50% increase in the RV loss.

DBRS Morningstar concludes that the expected rating under the eight stress scenarios will be:
-- Class A Notes: AA (high) (sf), AA (high) (sf), AA (high) (sf), AA (sf), AA (low) (sf), AA (sf), AA (low) (sf), and 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Ilaria Maschietto, Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 10 May 2021

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 rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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