DBRS Confirms Rating on the Class A Notes Issued by KMU Portfolio S.A., Compartment 2009-1

DBRS Ratings Limited (DBRS) has today confirmed its AAA (sf) rating on the EUR 94,620,422.40 Class A notes issued by KMU Portfolio S.A., Compartment 2009-1 (the Issuer).

This rating action is based on the following analytical considerations:
-- Portfolio Performance, in terms of delinquencies and defaults, as of the July 2016 payment date, in line with DBRS’s expectations.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested.
-- The current available credit enhancement to the notes to cover expected losses assumed in line with the AAA (sf) rating level for the Class A notes.

The rating on the Class A notes addresses the timely payment of interest and the ultimate payment of principal payable on or before the Legal Final Maturity Date in February 2024.

The Issuer has been established to operate as a multi-issuance special-purpose entity, incorporated under Luxembourg securitisation law. The notes are backed by a portfolio of loans and lease receivables granted by akf Bank GmbH & Co. KG (akf Bank) to German customers, for the acquisition of cars (24.2%), machinery (26.2%), other equipment (31.9%), ships (6.1%) and trucks (11.6%).

The transaction closed in August 2009 and originally envisaged a three-year revolving period, later extended for additional three years, until the July 2015 payment date.

As of the July 2016 payment date, the Delinquency Ratio was 0.9%, with delinquencies being defined as receivables in arrears by more than 30 days. The Cumulative Net Loss Ratio was 0.5%.

Credit enhancement to the Class A notes has been increasing due to the deleverage of the deal, and currently stands at 47.3%. Credit enhancement is provided by overcollateralisation, the subordination of the Class B and Class C notes and the Cash Reserve Account.

The transaction benefits from a Cash Reserve Account, available to cover senior expenses and missed interest payments on the Class A and Class B notes. This reserve was funded at closing through the proceeds of a Subordinated Loan by an amount equal to EUR 9.8 million and, to date, it has always been at its target level.

A swap structure is in place to mitigate the interest rate mismatch between the Class A notes, indexed to 1-month Euribor, and the fixed interest rate payments for the securitised portfolio. DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK AG) is the counterparty of the Swap Agreement; the DBRS rating of DZ BANK AG at A (high) complies with the First Rating Threshold defined in DBRS’s “Derivative Criteria for European Structured Finance Transactions” methodology.

The Bank of New York Mellon - London Branch acts as Account Bank for this transaction. The DBRS rating of The Bank of New York Mellon - London Branch at AA complies with the Minimum Institution Rating, given the rating assigned to the Class A notes, as described in DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is “Master European Structured Finance Surveillance Methodology”.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

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

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 the DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” found at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries.

The sources of information used for this rating include monthly investor reports provided by akf Bank.

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

DBRS was not 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 these ratings 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.

The last rating action on this transaction took place on 4 August 2015, when DBRS confirmed the rating on the Class A notes at AAA (sf).

The lead responsibilities of this transaction have been transferred to Joana Seara da Costa.

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

To assess the impact of changing transaction parameters on the rating, at closing DBRS considered the following stress scenarios compared with the parameters used to determine the rating (the Base Case):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the portfolio 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 receivables are 6.61% and 68.39%, respectively.

-- The Risk Sensitivity below illustrates the ratings expected of the Class A notes if the PD and LGD increase by a certain percentage over the base case assumptions. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), all else being equal. If the PD increases by 50%, the rating of the Class A notes would be expected to remain at AAA (sf), all else being equal. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to AA (sf), all else being equal.

Class A notes risk sensitivity:
-- 25% increase in LGD, expected rating of AAA (sf)
-- 50% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD, expected rating of AAA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AAA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD, expected rating of AAA (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of AA (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Authority (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: David Sánchez Rodríguez
Initial Rating Date: 12 June 2012
Initial Rating Committee Chair: Claire Mezzanotte

Lead Surveillance Analyst: Joana Seara da Costa, Financial Analyst
Rating Committee Chair: Chuck Weilamann, Managing Director

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

-- Master European Structured Finance Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations

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.