DBRS Assigns Rating to Geldilux-TS-2015 S.A.

DBRS Ratings Limited (DBRS) has today assigned a rating to the Class A Notes issued by Geldilux-TS-2015 S.A. (the Issuer) as follows:

-- EUR 1,830,000,000 Class A Secured Floating-Rate Notes due 2023 rated A (sf)

The transaction is a cash flow-revolving securitisation collateralised by a portfolio of short-term loans (maturities ranging from a few days to one year) to German large corporates, small and medium-sized enterprises, entrepreneurs, self-employed individuals and private individuals. The loans are originated under the UniCredit EGON Loan Program (EGON), whereby the loans (bullet in interest and principal) are arranged by UniCredit Bank AG (UCB or the Originator) and extended by UniCredit Luxembourg S.A. (UCL or the Seller).

DBRS does not rate the Liquidity Note, the Class B Notes, the Class C Notes and the Class D Notes.

The initial portfolio with an aggregate par balance up to EUR 2,000 million has been selected by a random procedure on the Issue Date in accordance with the loan Eligibility Criteria and the Portfolio Limits.

The transaction has a 62-month revolving period, during which the Seller has the option to sell new EGON loans to the Issuer. Given the short-term nature of the loans, the portfolio is replenished on a daily basis using the same random procedure used at closing, subject to the loan Eligibility Criteria and Portfolio Limits. The purchase price of new loans is usually paid by setting off the principal proceeds collected by the Transaction Servicer and Servicer (UCL and UCB, respectively) during the previous day.

The revolving period will prematurely end after the occurrence of certain events (Wind-Down Event), including the downgrade of UCB below BBB (low), the cumulative default rate (net of cure rate) exceeding 1.40%, the inability to fully replenish at least 90% of the portfolio for more than five days and the early termination of the interest rate swap agreement.

The rating of the Class A Notes is based on DBRS’s review of the following items:

-- The Portfolio Tests and loan Eligibility Criteria, based on which DBRS has created a worst-case portfolio. DBRS views as negative the limits on borrower concentration (minimum number of obligors at 900 and maximum borrower concentration at 1% of the portfolio), which can cause up to 97% of the portfolio to be extended to 97 borrowers only as well as on the largest industry as up to 38% of the portfolio can be granted to borrowers active in the Construction and Building sector (as per Moody’s industry classification). On the other hand, limits on the maximum portfolio weighted-average life (WAL; 90 days) and on the WA portfolio internal rating (4.5) and minimum obligor rating (6) are viewed very positively by DBRS.

-- The excellent performance of past 12 public transactions originated under the EGON loan program (22 obligors have defaulted since 1999).

-- The ownership of the collateral is not transferred to the Issuer, which was factored into DBRS’s analysis, assuming the portfolio to be 100% unsecured.

-- The interest rate swap agreement, which provides protection against the interest rate risk (loans are fixed rate) and liquidity risk, together with 35 basis points of additional margin.

-- The strong Wind-Down Events, which adequately mitigate the credit-quality deterioration of the transaction during the long revolving period and also mitigate the operational and credit-risk exposures to UCB and UCL. Once any of these events is breached, the portfolio will become static and will amortise in no more than one year.

-- The soundness of the transaction structure, which resembles that typical of a synthetic rather than a cash transaction as principal collections cannot be used to cover interest shortfalls and excess spread cannot be used to cover principal defaults. Interest payments on the Class A Notes will be made monthly. During the transaction life, once losses have been realised and verified by the Note Trustee, they will be allocated to reduce the principal balance of the notes starting from the most junior one.

-- The Interest Reserve (IR), funded by the Liquidity Note, is non-amortising and will be maintained at EUR 22 million. The IR is available to cover senior expenses and interest shortfalls on the Class A Notes, Liquidity Notes, Class B and Class C Notes as long as some performing loans or the Class A Notes are outstanding. After the payment in full of the Class A Notes and reduction to zero of the performing portfolio, the IR will be available to pay principal on the Liquidity Note (which can also be repaid through excess spread during the revolving period).

-- Commingling Risk is mitigated because, upon UCB being downgraded below BB (high) rating, a backup servicer is appointed and borrowers are notified to pay directly into a newly opened issuer account held by Citibank N.A, London Branch.

-- Set-off is mitigated by UCL’s commitment to fund a set-off reserve if (1) its rating falls below BBB and (2) the set-off exposure exceeds 1%. In addition, borrowers are notified upon UCB losing its BB (high) rating and loan Eligibility Criteria provides for the exclusion of borrowers holding deposits with UCL.

-- The credit enhancement for the Class A Notes (8.50)%, which DBRS considers to be sufficient to support its A (sf) rating.

-- The adequacy of the transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.

-- The soundness of the legal structure and the presence of legal opinions which address the true sale of the assets to the trust and the non-consolidation of the Issuer as well as consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

DBRS determined the rating of the Class A Notes as follows, as per the principal methodology specified below:
-- The annualised probability of default (PD) for the securitised portfolio, determined using the arrears data supplied, was computed to be 1.42%.
-- The assumed WAL of the portfolio was 0.25 years.
--The PD and WAL were used in the DBRS Diversity Model to generate the hurdle rate for the target rating.
-- The recovery rate was determined by considering the unsecured recovery rate for Germany at the A (sf) rating level.
-- The Break-Even Default Rates for the interest rate stresses and default timings were determined using the DBRS Cash Flow Model.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)”.
Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating were supplied by UniCredit Bank AG, the Arranger. Historical performance data were mainly based on historical defaults and internal rating migration tables of all loans securitised in previous Geldilux transactions.

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

DBRS was supplied with third party assessments; however, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the base case):

-- PD rates used: base case PD of 1.42%, a 10% and 20% increase on the base case PD.
-- Recovery rates used: Base case recovery rate of 26.25% at the A (sf) stress level, a 10% and 20% decrease in the base case recovery rate. Note that the percentage decreases in the recovery rates are assumed for the other stress recovery rate levels.

DBRS 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 downgrade of the transaction to A (low) (sf). A scenario combining both an increase in the PD by 10% and a decrease in the recovery rate by 10% would lead to a downgrade of the Class A Notes to A (low) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Marcello Bonassoli
Initial Rating Date: 29 July 2015
Initial Rating Committee Chair: Jerry van Koolbergen

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960.

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating CLOs Backed by Loans to European Small and Medium-Sized Enterprises (SMEs)
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Operational Risk Assessment for European Structured Finance Servicers

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.