Press Release

DBRS Morningstar Confirms Rating on Secucor Finance 2021-1 DAC

Consumer Loans & Credit Cards

March 25, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating on the Class A Notes issued by Secucor Finance 2021-1 DAC (the Issuer).

The rating addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the March 2022 payment date;
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables;
-- Current available credit enhancement to the Class A Notes to cover the expected losses at the AA (sf) rating level;
-- No amortisation events or breach of concentration limits occurred to date; and
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.

The transaction is a revolving securitisation of amortising consumer loans, store card-charge loans, and revolving credit facilities granted to customers of the El Corte Inglés S.A. group in Spain. The portfolio is serviced by the captive finance company of the group, Financiera El Corte Ingles E.F.C., S.A. (Financiera El Corte Ingles).

The transaction is structured with a 36-month revolving period until July 2024, and features borrowing base calculations and dynamic credit enhancement from the Class B Variable Funding Notes (VFN), various reserves, and excess spread to provide support to the Class A Notes. There is a yield reserve for interest-free loans to cover the servicing fees and interest on the Class A Notes, and a dilution reserve floored at 3% to cover merchandise disputes, rebates, and frauds. In addition, there is a loss reserve based on the weighted-average (WA) loss reserve factor of each loan type that determines, together with the dilution reserve, the asset factor. The asset factor is used to derive to determine the maximum Class A advance. As the asset factor has a floor of 9%, the Class A Notes will have at least 8.3% subordination support from the Class B VFN minimum amount.

PORTFOLIO PERFORMANCE
As of the latest portfolio cut-off date in February 2022, delinquencies were low, with 60- to 90-day and 90+-day arrears totalling 0.2% and 0.3%, respectively. Cumulative defaulted receivables as of the same cut-off date were still not meaningful.

The following triggers are within the limits:
-- Minimum borrowing base trigger,
-- Principal retention trigger,
-- Class A reserve fund trigger,
-- Delinquency trigger,
-- Default trigger,
-- WA maturity triggers for the various products and on an aggregate portfolio basis, and
-- Dilution trigger.

The yield reserve, dilution reserve, and loss reserve were equal to 0.36%, 3.0%, and 14.1%, respectively, resulting in an asset factor of 20.6%. This brings the minimum subordination to 17.1%, well below the current subordination of 28.6% from which the Class A Notes can benefit.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar conducted a loan-by-loan analysis of the outstanding pool of receivables and maintained its base-case PD and LGD assumptions at 4.4% and 85.0%, respectively. DBRS Morningstar continues to base its analysis on worst-case portfolios constructed to address potential migration toward the riskiest products during the revolving period.

CREDIT ENHANCEMENT
The Class A Notes benefit from subordination provided by the dynamically funded Class B VFN as described above. While still above the minimum level, subordination has decreased to 28.6% from 32.9% at closing.

The transaction benefits from a reserve that is available to cover shortfalls in senior expenses and interest on the Class A Notes. The reserve required amount is 0.75% of the outstanding Class A Notes balance with a floor of 0.07% of the Class A Notes’ balance at the start of the amortisation period.

Banco Santander SA (Santander) acts as the account bank for the transaction. Based on the A (high) reference rating of Santander (one notch below its Long Term Critical Obligations Rating of AA (low)), the downgrade provisions outlined in the transaction documents, and structural mitigants inherent in the transaction structure, DBRS Morningstar considers the risk arising from the 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.

DBRS Morningstar analysed the transaction structure in Intex DealMaker.

The Coronavirus Disease (COVID-19) and the resulting isolation measures had caused an immediate economic contraction, leading in some cases to increases in unemployment rates and income reductions for many borrowers.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. These scenarios were last updated on 24 March 2022. DBRS Morningstar analysis considered impacts consistent with the baseline scenario in the below referenced report. For details, see the following commentaries: https://www.dbrsmorningstar.com/research/394150/baseline-macroeconomic-scenarios-for-rated-sovereigns-march-2022-update and https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 the “Master European Structured Finance Surveillance Methodology” (8 February 2022).

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 transactions in accordance with the surveillance section of 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 consider potential portfolio migration based on the replenishment criteria set forth in the transaction legal documents.

A review of the transactions’ legal documents was not conducted as the legal documents have remained unchanged since the most recent rating actions.

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/381451/global-methodology-for-rating-sovereign-governments.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The sources of data and information used for this rating include monthly reports provided by Financiera El Corte Ingles.

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.

This is the first rating action since the Initial Rating Date.

The lead analyst responsibilities for this transaction have been transferred to Daniele Canestrari.

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 ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case).

-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool 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 loans for the Issuer are 4.4% and 85.0%, respectively.

Class A Notes Risk Sensitivity
-- 100% LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 100% LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 100% LGD, expected rating of A (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: Daniele Canestrari, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 15 July 2021

The rating methodologies used in the analysis of these transactions 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.

Download This Press Release