Press Release

DBRS Morningstar Confirms Credit Rating on Rosenkavalier 2022 UG (haftungsbeschränkt)

Structured Credit

November 10, 2023

DBRS Ratings GmbH (DBRS Morningstar) confirmed its A (high) (sf) credit rating on the Class A fixed-rate notes due May 2028 (the Class A Notes) issued by Rosenkavalier 2022 UG (haftungsbeschränkt) (the Issuer or Rosenkavalier).

The credit rating on the Class A Notes addresses the ultimate payment of interest and the ultimate payment of principal on or before the legal final maturity date in May 2028. Rosenkavalier also issued EUR 495,000,000 Class B fixed-rate notes due May 2028 (together with the Class A Notes, the notes), which were not rated by DBRS Morningstar.

The confirmation follows an annual review of the transaction and is based on the following analytical considerations:
-- The portfolio performance, in terms of the level of delinquencies and defaults, as of the October 2023 payment date;
-- The one-year base-case probability of default (PD) and default and recovery rates on the receivables;
-- No early amortization event has occurred; and
-- The current available credit enhancement to the Class A Notes to cover the expected losses at the A (high) (sf) credit rating level.

The transaction is a revolving cash flow securitisation collateralised by a portfolio of performing loans to German corporates, small and medium-size enterprises (SMEs), and entrepreneurs. The loans were granted by UniCredit Bank AG (UCB; the originator or the servicer) under its EGON loan program and consist of short-term bullet loans with a fixed interest and principal payment at maturity.

PORTFOLIO PERFORMANCE
The portfolio is performing within DBRS Morningstar’s expectations. As of the October 2023 payment date, there are no delinquent loans reported. The cumulative defaults currently stand at 0.0%.

REVOLVING PERIOD
The transaction closed in November 2022 and includes a 36-month revolving period, scheduled to end in November 2025, during which time the originator may sell new receivables to the Issuer on a daily basis, subject to certain eligibility and replenishment criteria. The revolving period will end prematurely if certain events occur, such as the cumulative gross default rate exceeding 2.5% or a downgrade of the originator’s credit rating below BBB (low) by DBRS Morningstar. During the revolving period, the purchase of new receivables will be funded through principal collections.

PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained the portfolio’s one-year base-case PD assumption at 1.9%. DBRS Morningstar’s analysis continues to assume the worst-case portfolio allowed by the eligibility criteria and portfolio limits. DBRS Morningstar updated its PD and recovery assumptions to 11.8% and 26.1%, respectively, at the A (high) (sf) credit rating level.

CREDIT ENHANCEMENT
As of the October 2023 payment date, the Class A Notes benefit from a total credit enhancement of 16.5%, unchanged from closing because of the revolving period in place. The credit enhancement is provided by the subordination of the Class B Notes. The servicer will fund a liquidity risk reserve upon a downgrade below BBB (low), which will be available to cover expenses and senior fees. DBRS Morningstar expects the liquidity risk reserve to cover senior costs for approximately one year. Interest on the notes is deferrable and, ultimately, extinguishable.

The transaction is exposed to the risk of set-off and no additional reserve or credit enhancement is provided to mitigate this risk. As a result, DBRS Morningstar assumed a set-off risk loss of EUR 105 million in its analysis, which was deducted from the portfolio balance.

UCB is a dominant counterparty for the transaction as it acts as originator, seller, servicer, account bank, cash administrator, and paying agent. UCB holds the servicer collection account, the Issuer’s operating accounts, and the liquidity risk reserve account. Based on the account bank’s credit rating and the replacement provisions included in the transaction documents, DBRS Morningstar considers the risk of such a counterparty to be consistent with the credit rating assigned, in accordance with the “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS Morningstar’s credit rating on the Class A Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784.

DBRS Morningstar analysed the transaction structure in its proprietary Excel-based cash flow engine.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit rating is: “Rating CLOs Backed by Loans to European SMEs” (22 October 2023), https://www.dbrsmorningstar.com/research/422274/rating-clos-backed-by-loans-to-european-smes.

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 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 replenishment criteria set forth in the transaction legal documents.

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

For a more detailed discussion of the sovereign risk impact on Structured Finance credit 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/421590.

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.

The sources of data and information used for this credit rating include reports provided by UCB and loan-by-loan data from the European DataWarehouse GmbH.

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

At the time of the initial credit rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the credit rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this credit rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this transaction took place on 18 November 2022, when DBRS Morningstar assigned an A (high) (sf) credit rating to the Class A Notes.

The lead analyst responsibilities for this transaction have been transferred to Helvia Meana.

Information regarding DBRS Morningstar credit 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 credit rating, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the credit rating (the Base Case):

-- PD rates used: Base-case PD of 1.9%, a 10% increase in the base case and a 20% increase in the base-case PD.
-- Recovery rates used: Base-case recovery rate of 26.1% at the A (high) (sf) credit rating level and a 10% and 20% decrease in the base-case recovery rates. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS Morningstar concludes that a hypothetical increase of the base-case PD by 20% or a hypothetical decrease of the recovery rate by 20%, ceteris paribus, would each lead to a credit rating confirmation on the Class A Notes at A (high) (sf). A scenario combining both an increase in the PD by 20% and a decrease in the recovery rate by 20% would lead to a credit rating confirmation on the Class A Notes at 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://registers.esma.europa.eu/cerep-publication. 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 credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Helvia Meana, Assistant Vice President
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 18 November 2022

DBRS Ratings GmbH
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Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The credit 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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