Press Release

DBRS Morningstar Assigns Ratings to abc SME Lease Germany S.A., acting in respect of its Compartment 8

Consumer/Commercial Leases

August 19, 2022

DBRS Ratings GmbH (DBRS Morningstar) assigned a AAA (sf) rating to the Class A Notes and a AA (high) (sf) rating to the Class B Notes issued by abc SME Lease Germany S.A., acting in respect of its Compartment 8 (the issuer). DBRS Morningstar does not rate the Class C Notes issued in this transaction.

The ratings on the Class A and Class B Notes address the timely payment of interest and the ultimate repayment of principal by the legal final maturity date of August 2032.

RATING RATIONALE
The ratings are based on DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement.
-- Credit enhancement levels that are sufficient to support DBRS Morningstar’s expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the transaction documents.
-- abcbank GmbH’s (abcbank; the seller and the master servicer), the originators’ (abcbank GmbH, ETL Finance GmbH & Co. KG, milon financial services GmbH, Hako Finance GmbH, and Schneidereit Finance GmbH), and the servicers’ capabilities with respect to originations, underwriting, servicing, and financial strength.
-- DBRS Morningstar’s operational risk review on abcbank GmbH, which it deemed to be an acceptable servicer.
-- The appointment of akf bank GmbH & Co KG as the transaction’s backup servicer and its capabilities with respect to servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral, and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s sovereign rating on the Federal Republic of Germany at AAA with a Stable trend.
-- 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 address the true sale of the assets to the issuer, and nonconsolidation of the issuer with the seller.

TRANSACTION STRUCTURE
The transaction represents the issuance of EUR 442.0 million of Class A Notes, EUR 6.2 million of Class B Notes, and EUR 71.8 million of Class C Notes backed by a revolving portfolio of EUR 519.5 million of fixed-rate receivables related to leases granted by the originators to small businesses and professional clients residing in Germany. The difference between the Notes issuance amount and the portfolio amount has been deposited as cash on the Purchase Shortfall Ledger on the closing date.

The portfolio will be serviced by abcbank. The transaction allocates payments on separate interest and principal payment priorities and benefits from a EUR 6.8 million amortising liquidity reserve, funded at closing through a subordinated loan. The liquidity reserve can be used to cover senior costs and interest on the Class A and Class B Notes and, to the extent that excess can be released, it can be used to offset defaulted receivables through a principal deficiency ledger mechanism, thus providing soft credit enhancement. The transaction documentation foresees a commingling risk reserve that can be funded at any time and drawn in a commingling risk event. This reserve was not funded at closing.

The transaction includes a 24-month revolving period scheduled to end in August 2024 (inclusive). During the revolving period, abcbank may offer additional receivables that the issuer will purchase, provided that the eligibility criteria and concentration limits set out in the transaction documents are satisfied.

The revolving period may end earlier than scheduled if an early amortisation event, such as a breach of predefined performance triggers or a purchase shortfall, occurs. At the end of the revolving period or after the occurrence of an early amortisation event, the notes will be repaid on a fully sequential basis.

The transaction is not exposed to interest rate risk since the notes pay a fixed coupon and the portfolio, by way of using a discount rate to value receivables, earns a fixed spread.

COUNTERPARTIES
Citibank Europe plc, Germany Branch, acts as the account bank for the transaction. Based on DBRS Morningstar’s AA (low) rating of Citibank Europe plc, as well as the downgrade provisions and structural mitigants in the transaction, DBRS Morningstar considers the structure to be consistent with the ratings assigned to the Class A and Class B Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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 transaction structure in Intex Dealmaker, considering the default rates at which the rated notes did not return all specified cash flows.

On 19 August 2022, DBRS Morningstar amended the disclosures to the above press release as well as the related rating report with an updated list of applicable methodologies.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations” (29 October 2021).

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/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 the originators, provided through the joint lead arrangers, abcbank GmbH and Landesbank Baden-Württemberg.

DBRS Morningstar received monthly static default data from Q1 2012 to Q1 2022, monthly static recovery data from Q1 2012 to Q1 2022, monthly dynamic delinquency data from Q1 2012 to Q1 2022, and monthly static prepayment rates from Q4 2018 to Q1 2022. DBRS Morningstar also received a set of stratification tables for the initial portfolio as of 31 July 2022 and the related contractual amortisation profile.

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 newly issued financial instruments. 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.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the rating (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 7.45% and 48.87%, respectively.
-- Expected defaults (PD) used: 27.69% for a AAA (sf) scenario, 23.78% for a AA (high) (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Expected Loss given defaults (LGD) used: 64.07% for a AAA (sf) scenario, 61.36% for a AA (high) (sf) scenario, a 25% and 50% increase on the applicable LGD.

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

DBRS Morningstar concludes that the expected ratings under the eight hypothetic scenarios are
-- Class A Notes: AA (sf), A (high) (sf), AA (high) (sf), A (high) (sf), A (low) (sf), A (high) (sf), A (low) (sf), BBB (high) (sf).
-- Class B Notes: AA (low) (sf), A (sf), AA(low) (sf), A (sf), BBB (high) (sf), A (high) (sf), BBB (high) (sf), BBB (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: Stephan Rompf, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 19 August 2022

DBRS Ratings GmbH
Neue Mainzer Straße 75
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.

Download This Press Release