DBRS Confirms Ratings on SCL V

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the Notes issued by SCL V as follows:

-- Class A Floating-Rate Notes (Class A Notes) confirmed at AAA (sf)
-- Class B Floating-Rate Notes (Class B Notes) confirmed at AA (sf)
-- Class C Floating-Rate Notes (Class C Notes) confirmed at A (sf)
-- Class D Floating-Rate Notes (Class D Notes) confirmed at BBB (sf)

The rating actions are based on the following analytical considerations:

-- Portfolio performance, in terms of delinquencies and defaults.
-- Current credit enhancement (CE) available to the Notes to cover the expected losses at the respective rating levels.
-- The ability of the transaction’s structure and triggers to withstand stressed cash flow assumptions and repay the Notes according to the terms of the transaction documents.

SCL V closed in November 2015. The Notes are backed by a portfolio of negotiable promissory notes and claims related to unsecured loans granted to Swedish consumers originated and serviced by Nordax Bank AB.

Portfolio Performance
The transaction is currently in the revolving period ending in November 2017 and the collateral portfolio is performing within DBRS’s expectations. As of 5 October 2016, the loans more than 90 days delinquent, as a percentage of the outstanding non-defaulted collateral balance, were 0.92%. The cumulative loan default, as a percentage of the balance initially securitized loans plus the subsequent additional purchases since the transaction’s closing, was 1.42%. DBRS has maintained its base case portfolio default rate and recovery rate assumptions at 8% and 36%, respectively.

Credit Enhancement
The main source of CE to the rated Notes is the subordinated Notes. The level of CE available to the rated Notes has remained the same as at the transaction’s closing, at 40% for Class A, 25% for Class B, 15% for Class C and 9% for Class D Notes. An additional CE of 0.93% from the Credit Enhancement Reserve is currently available to all the rated Notes. The Credit Enhancement Reserve is funded and replenished on each payment date through the available excess spread in the transaction. It is currently funded to its target level (SEK 16.5 million as of the October 2016 payment date), which is determined based on the level of delinquencies in the outstanding collateral portfolio.

Nordea Bank AB acts as the Account Bank for the transaction. The Account Bank’s reference rating of AA, being one notch below the DBRS Long Term Critical Obligations Rating of Nordea Bank AB at AA (high), complies with the Minimum Institution Rating criteria 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 Swedish kronor unless otherwise noted.

The principal methodology applicable is the 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.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction and no change in assumptions, the initial analysis based on worst-case replenishment criteria set forth in the transaction legal documents was assumed.

A review of the transaction 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.

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

The source of information used for this rating includes the monthly investor reports provided by Nordax Bank AB.

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

DBRS was supplied with third party assessments at the initial rating. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating to be 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 5 November 2015, when DBRS finalised the provisional ratings on the rated Notes.

The lead responsibilities for this transaction have been transferred to Kevin Ma.

Information regarding DBRS ratings, including definitions, policies and methodologies, is 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 to 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 pool based on a review of the current assets and the transaction’s eligibility criteria. 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 revolving pool of loans are 8% and 64%, respectively.

-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the PD. If the PD increases by 50%, the rating on the Class A Notes would be expected to be at AAA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating on the Class A Notes would be expected to be at AA (sf).

Class A Notes 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)
-- 50% 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 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)

Class B Notes Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf)
-- 50% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD, expected rating of AA (sf)
-- 50% increase in PD, expected rating of AA (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of A (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of A (sf)

Class C Notes Sensitivity:
-- 25% increase in LGD, expected rating of A (sf)
-- 50% increase in LGD, expected rating of A (sf)
-- 25% increase in PD, expected rating of A (sf)
-- 50% increase in PD, expected rating of A (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of A (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BBB (sf)

Class D Notes Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BBB (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of BB (high) (sf)

For further information on DBRS historical 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: Kevin Chiang, Senior Vice President
Initial Rating Date: 23 October 2015
Initial Rating Committee Chair: Jamie Feehely, Managing Director

Lead Surveillance Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Chuck Weilamann, Managing Director

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

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

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