DBRS Morningstar Confirms AA (sf) Rating on Columbus Master Credit Cards Fondo de Titulización Following Extension

DBRS Ratings GmbH (DBRS Morningstar) confirmed its AA (sf) rating on the Class A2021-01 Notes issued by Columbus Master Credit Cards Fondo de Titulización (the Issuer) following two-year extensions of both the scheduled amortisation date and the maturity date (the Extension).

DBRS Morningstar does not rate the Class C 2021-01 Notes (along with the Class A 2021-01 Notes, the Notes) also issued in this transaction.

The rating of the Class A 2021-01 Notes addresses the timely payment of scheduled interest and the ultimate repayment of principal by the legal final maturity date.

The Notes were initially issued in June 2021 and are backed by a portfolio of receivables arising from credit cards granted to individuals domiciled in Spain and originated and serviced by Servicios Financieros Carrefour E.F.C., S.A (the seller and servicer).

RATING RATIONALE
The rating confirmation follows a review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, charge-off rates, monthly principal payment rates (MPPR), and yield rates;
-- Current available credit enhancement to the Class A 2021-01 Notes to cover the expected losses at the AA (sf) rating level; and
-- Non-occurrence of a programme revolving termination event or a programme amortisation event.

TRANSACTION STRUCTURE
Following the Extension, the scheduled revolving period and the maturity date were extended by 24 months to June 2025 and June 2038, respectively. The coupon rates of the Notes were also increased to 4% and 4.35%, respectively, from 0.15% and 0.5% at issuance.

During the revolving period, the seller may continue to offer additional receivables that the Issuer will purchase, provided that the eligibility criteria and portfolio criteria set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled if certain events occur, such as the breach of performance triggers, insolvency of the seller, or replacement of the servicer. At the end of the revolving period, the Notes will be repaid on a fully sequential basis.

Credit enhancement available to the Class A2021-01 Notes during the amortisation period remains unchanged with 31% subordination of the Class C2021-01 Notes and the minimum seller interest credit facility amount, potential overcollateralisation, and excess spread.

The transaction allocates payments in separate interest and principal priorities and the Class A2021-01 Notes continue to benefit from a general reserve of EUR 5 million, which is equal to 1.2% of the outstanding balance of all Class A notes of the Issuer. The general reserve is available to cover shortfalls in senior expenses and interest payments on all the outstanding Class A notes.

A commingling reserve fund of EUR 10.4 million is also available to the Issuer in the event that the servicer fails to comply with its financial obligations under the servicing agreement.

As of today, the Notes are the only outstanding note series of the Issuer.

COUNTERPARTIES
Banco Santander SA (Santander) remains as the account bank for the Issuer. Based on Santander’s Long-Term Issuer Rating of A (high), the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be commensurate with the rating assigned, as described in DBRS Morningstar's criteria.

PORTFOLIO ASSUMPTIONS
As of April 2023, the delinquency rates of the securitised portfolio were 0.7% and 1.6% for loans with two to three instalments and with three to six instalments in arrears, respectively. The three-month rolling average of the annualised charge-off rate was 5.0% and the three-month rolling average of the annualised yield rate was 17.9%.

The charge-off rates reported by the Issuer since the programme inception in 2019 have been approximately 2% to 3% lower than those of the managed book reported by the seller. The noticeably better performance is due to the eligibility criteria that excludes delinquent receivables. The positive impact, however, disappeared in the months following the first national lockdown induced by Coronavirus Disease (COVID-19) pandemic in March 2020, as the Issuer experienced higher charge-off rates than the managed book. DBRS Morningstar notes that the positive selection effect has returned to the historical norm of around 2% since 2022.

To further assess the charge-off rates, DBRS Morningstar conducted a roll rate analysis of delinquencies based on the data since 2022 as the indicator of eventual charge-offs. The annualised charge-off rates based on six-month and 12-month delinquency roll rates are 7.6% and 6.6%, respectively.

DBRS Morningstar elected to maintain its expected charge-off rate at 9.25% in consideration of the volatility in reported charge-off rates and the worsening arrears trends.

The yield of the managed book was stable at around 20% since the programme inception until mid-2020, mainly driven by the following factors: (1) the securitised portfolio consists entirely of revolving transactions, which by nature would incur interest charges as long as the receivable is performing, (2) the allocation order of collections by the seller is billed interest yield first, which would result in a flat level before adjustments for defaulted receivables as long as the total payments by the borrowers are higher than the accrued interest yield amounts, (3) late payment fees are capitalised in the outstanding debt amount, instead of being included in the yield rate; and (4) the uniform 20.04% nominal headline rate (excluding fees and commissions) or 21.99 % annual percentage rate (APR with fees and commissions) for the PASS card agreements until September 2020.

From mid-2020, the managed book’s yield started to decline following a Spanish supreme court ruling in March 2020, which deems a 26.82% credit card contractual interest rate usurious. The seller started in September 2020 to reduce the APR of new credit card agreements to 18.99%, which contributed to a gradual decline in the reported yield. Following the more recent Spanish supreme court rulings and clarifications in 2022 and 2023, the seller in May 2023 re-applied the 21.99% APR for new agreements.

DBRS Morningstar elected to maintain its expected yield assumption at 17.5% in light of expected improvement.

The MPPR as of April 2023 was 5.0% and has been in the range of 3% to 5% since the programme inception. The low level is driven by the exclusion of interest-free payments made during the grace period and large percentages of accounts making minimum payments between 3% and 5% of credit limits.

As the securitisation documents prescribe the collections allocation to the available principal first with the remaining as the available interest (including recoveries), which is the opposite of the allocation priorities done by the seller for the managed book, the securitised pool has historically higher MPPR levels than the managed book. The positive gap for the Issuer has gradually declined since the programme inception but has stabilised at around 0.5% since Q2 2022.

Based on the analysis of historical data and the historical positive difference, DBRS Morningstar increased the expected MPPR to 4.5% from 4.0%.

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

While the receivables are exposed to potential set-off by the borrowers, DBRS Morningstar considers this risk to be nominal as the seller currently does not take deposits.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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.

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” (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

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/401817/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 following data:
-- Receivables balances, monthly payment rates, monthly purchase rates, delinquencies, gross charge-off rates, interest yield rates, and recoveries from January 2011 to April 2023 provided by the seller; and
-- Investor reports provided by the management company, InterMoney Titulización S.G.F.T., S.A.

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 at the transaction closing. 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.

The last rating action on this transaction took place on 28 June 2022, when DBRS Morningstar confirmed its rating on the Class A 2021-01 Notes at AA (sf).

The lead analyst responsibilities for this transaction have been transferred to Roberto Perez.

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 rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating:

-- Expected Yield Rate: 17.5%
-- Expected MPPR: 4.5%
-- Expected Charge-Off Rate: 9.25%

-- Scenario 1: 25% decrease in yield rate
-- Scenario 2: 25% decrease in MPPR
-- Scenario 3: 25% increase in charge-off rate
-- Scenario 4: 15% decrease in MPPR, 15% increase in charge-off rate, 15% decrease in yield rate

DBRS Morningstar concludes that the expected ratings under the four stress scenarios are:
-- Class A2021-01 Notes: A (sf), A (sf), A (low) (sf), and BBB (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. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

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

Lead Analyst: Roberto Perez, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 23 June 2021

DBRS Ratings GmbH, Sucursal en España
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Tel. +34 (91) 903 6500

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Tel. +49 (69) 8088 3500
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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.

-- Rating European Consumer and Commercial Asset-Backed Securitisations (19 October 2022), https://www.dbrsmorningstar.com/research/404212/rating-european-consumer-and-commercial-asset-backed-securitisations.
-- Master European Structured Finance Surveillance Methodology (7 February 2023), https://www.dbrsmorningstar.com/research/409485/master-european-structured-finance-surveillance-methodology.
-- 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 (22 July 2022), https://www.dbrsmorningstar.com/research/400166/legal-criteria-for-european-structured-finance-transactions.
-- Operational Risk Assessment for European Structured Finance Originators (15 September 2022), https://www.dbrsmorningstar.com/research/402773/operational-risk-assessment-for-european-structured-finance-originators.
-- Operational Risk Assessment for European Structured Finance Servicers (15 September 2022), https://www.dbrsmorningstar.com/research/402774/operational-risk-assessment-for-european-structured-finance-servicers.
-- 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.