DBRS Morningstar Confirms Ratings of aZul Master Credit Cards DAC

DBRS Ratings GmbH (DBRS Morningstar) confirmed its ratings of the outstanding notes issued by aZul Master Credit Cards DAC (the Issuer) as follows:

-- Series 2020-1, Class A Notes at A (high) (sf)
-- Series 2020-1, Class C Notes at BB (sf)

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

The Issuer is a revolving programme of credit card receivables acquired (Ruby) or granted (Core) by WiZink Bank S.A. (WiZink) to individuals in Spain. WiZink also acts as the servicer of the portfolio. The transaction closed in July 2020 with an initial receivables balance of EUR 295.0 million and a maximum programme size of EUR 2.0 billion.

The rating confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, charge-off, principal payment, and yield rates as of the June 2022 payment date;
-- The ability of programme- and series-specific structures to withstand stressed cash flow assumptions;
-- No occurrence of a programme revolving termination event; and
-- Current available credit enhancement to the notes to cover the expected losses at the respective rating levels.

PROGRAMME AND TRANSACTION STRUCTURE
The programme incorporates separate interest and principal waterfalls during the revolving and amortisation periods that allocate the available funds including the reserve fund and collections of interest, principal, and recoveries from receivables to each specific notes series.

The programme has an indefinite revolving period. During this period, the Issuer may purchase additional receivables, provided that the eligibility criteria set out in the transaction documents are satisfied. For this Issuer, the revolving termination events are set at the programme level instead of at the series level. The occurrence of such events would lead to early amortisation of all outstanding notes at the same time, subject to series-specific waterfalls and allocation percentages.

Credit enhancement available to the notes during the amortisation period consists of subordination of the junior notes and seller interest credit facility, potential overcollateralisation, and excess spread.

The programme benefits from a general reserve that is available to cover the shortfalls in senior expenses, swap payments (if applicable), and interest on the Class A Notes issued out of the entire programme. The general reserve is amortising to a target amount equal to 1.2% of all Class A Notes outstanding balance, subject to a floor amount of 0.6% of the initial Class A Notes balance of all notes series. As of the June 2022 payment date, the reserve was at its target balance of EUR 2.7 million.

A commingling reserve facility is also available to the programme following the servicer’s breach of its payment obligations. The required amount of this facility is equal to 1.5% of the outstanding receivables balance. As of the June 2022 payment date, the reserve was funded to its target of EUR 4.9 million.

COUNTERPARTIES
Société Générale S.A. (Spanish branch) acts as the Issuer’s account bank. Based on DBRS Morningstar’s private ratings of Société Générale S.A. (Spanish branch), and the downgrade provisions outlined in the transaction documents, DBRS Morningstar considers the risk arising from the exposure to the Issuer’s account bank to be commensurate with the ratings assigned, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
The monthly principal payment rate (MPPR) has consistently been in the range of 10% to 12% since the programme establishment in 2020, with an increasing trend seen over the past 12 months. Based on the analysis of historical data, DBRS Morningstar maintained the expected MPPR at 9.8%.

The yield rate appears to have stabilised over the past 15 months in the range of 16% to 18%. After considering the historical trends, DBRS Morningstar maintained its expected yield assumption at 16.7%.

Charge-off rate has averaged 5.9% since 2020, reaching a peak of 10.3% in November 2021, but has since gradually decreased. Based on the analysis of historical data and positive selection of eligible receivables, DBRS Morningstar maintained its expected charge-off rate at 12.5%.

The portfolio asset assumptions above also consider the migration of the securitised pool towards the Core portfolio since the programme establishment, as the Ruby portfolio continues to be in run-off.

As the receivables are unsecured and no static vintage data was provided, DBRS Morningstar used a zero-recovery assumption in its cash flow analysis.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
DBRS Morningstar considers some unusual aspects of general eligibility criteria and related representations and warranties given by WiZink to the Issuer regarding compliance with law (specifically, a usury law carve-out) to have a negative rating impact.

In DBRS Morningstar’s view, the legal and regulatory risks arising from the non-standard eligibility criterion fall under Transaction Governance in the environmental, social, and governance (ESG) analytical framework for structured finance transactions.

The A (high) (sf) rating of the Class A Notes is, consequently, one notch lower than the level implied by the cash flow results. The BB (sf) rating of the Class C Notes, on the other hand, is not affected by the 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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

DBRS Morningstar analysed the program and transaction structure in its proprietary cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (19 May 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 transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

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.

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 these ratings include monthly investor and collateral reports provided by Intermoney Titulización, S.G.F.T., S.A. (the Transaction Manager).

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings, 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.

The last rating action on this transaction took place on 23 July 2021, when DBRS Morningstar confirmed the ratings of the Series 2020-1, Class A Notes and Series 2020-1, Class C Notes at A (high) (sf) and BB (sf), respectively.

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

Sensitivity Analysis: 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:

-- Expected Charge-Off Rate: 12.5%
-- Expected Principal Payment Rate: 9.8%
-- Expected Yield Rate: 16.7%

-- Scenario 1: a 25% increase in the expected Charge-Off Rate
-- Scenario 2: a 25% decrease in the expected Principal Payment Rate
-- Scenario 3: a 25% decrease in the expected Yield Rate
-- Scenario 4: a 15% increase in the expected Charge-Off Rate, 15% decrease in the expected Principal Payment Rate and 15% decrease in the expected Yield Rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios will be:
-- Class A Notes: A (low) (sf), A (low) (sf), A (sf), BBB (high) (sf)
-- Class C Notes: B (high) (sf), BB (low) (sf), B (high) (sf), B (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.

These ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Daniel Rakhamimov, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 23 July 2020

DBRS Ratings GmbH
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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.

-- Master European Structured Finance Surveillance Methodology (19 May 2022), https://www.dbrsmorningstar.com/research/397033/master-european-structured-finance-surveillance-methodology.
-- Rating European Consumer and Commercial Asset-Backed Securitisations (29 October 2021),
https://www.dbrsmorningstar.com/research/387042/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Rating European Structured Finance Transactions Methodology (15 July 2022), https://www.dbrsmorningstar.com/research/399899/rating-european-structured-finance-transactions-methodology.
-- Legal Criteria for European Structured Finance Transactions (29 July 2021), https://www.dbrsmorningstar.com/research/382171/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Servicers (16 September 2021), https://www.dbrsmorningstar.com/research/384513/operational-risk-assessment-for-european-structured-finance-servicers.
-- Operational Risk Assessment for European Structured Finance Originators (16 September 2021), https://www.dbrsmorningstar.com/research/384512/operational-risk-assessment-for-european-structured-finance-originators.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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.