DBRS Confirms Ratings on SCL V

DBRS Ratings Limited (DBRS) took rating actions 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.
-- Actual gross default rate, recovery rate and losses are within DBRS’s expectations.
-- Current credit enhancement (CE) available to the notes to cover the expected losses at the respective rating levels.

SCL V closed in November 2015 and the notes are backed by a portfolio of negotiable as well as non-negotiable promissory notes and claims related to unsecured loans granted to Swedish consumers originated and serviced by Nordax Bank AB. The transaction is currently in the revolving period, which is due to end in November 2017 and will be followed by a step-up in the note margins in November 2018.

PORTFOLIO PERFORMANCE AND ASSUMPTIONS
As of 5 September 2017, loans more than 90 days delinquent as a percentage of the outstanding non-defaulted collateral balance were at 0.75%, and loans more than 30 days delinquent were at 2.00%. The cumulative loan default as a percentage of the initially securitised loans plus subsequent additional purchases since the transaction’s closing was 4.36 %. DBRS received new loan vintage data from the servicer and updated its base case default rate and recovery assumptions to 11.7% and 47.8% from 8% and 36%, respectively.

CREDIT ENHANCEMENT AND RESERVES
The main 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 the Class D notes. The CE is provided through the subordinated notes. An additional CE of 0.96% from the Credit Enhancement Reserve is available to all the rated notes. The CE Reserve is funded and replenished on each payment date prior to the step-up date through the excess spread available in the transaction. It is currently funded to its target level of SEK 17.5 million, which is determined based on the level delinquencies in the outstanding collateral portfolio.

Additionally, the rated notes benefit from a Liquidity Reserve equal to 1.25% of the outstanding portfolio amount that is available to cover senior fees and interest on the rated notes. The Liquidity Reserve does not amortise during the revolving period and it is currently funded to its target level of SEK 22.9 million.

Nordea Bank AB acts as the Account Bank to the transaction. The Account Bank reference rating of AA, being one notch below the DBRS Long-Term Critical Obligations Rating (COR) of AA (high), complies with the Minimum Institution Rating, given the rating assigned to the most senior 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 to the ratings 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.

An asset and a cash flow analysis were both conducted. However, due to the inclusion of a revolving period in the transaction, an 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 legal 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 sources of data and information used for these ratings are updated vintage data as well as monthly investor reports provided by the Servicer Nordax Bank AB.

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

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

DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS 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 27 October 2016, when DBRS confirmed the ratings on all the rated notes.

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 ratings (the “Base Case”):

-- DBRS expected a base case probability of default (PD) and loss given default (LGD) for the remaining collateral 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 updated Base Case PD is 11.7% and the updated recovery rate is 47.8%, which translates to a LGD of 52.2%.
-- 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 AA (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 AA (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 A (low) (sf).

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

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

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

Class D Risk Notes Sensitivity:
-- 25% increase in LGD, expected rating of BBB (sf)
-- 50% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD, expected rating of BBB (sf)
-- 50% increase in PD, expected rating of BB (high) (sf)
-- 25% increase in PD and 25% increase in LGD, expected rating of BB (high) (sf)
-- 25% increase in PD and 50% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 25% increase in LGD, expected rating of B (high) (sf)
-- 50% increase in PD and 50% increase in LGD, expected rating of CCC (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 and US regulations only.

Lead Analyst: Kevin Ma, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 26 October 2015

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 Originators
-- Operational Risk Assessment for European Structured Finance Servicers
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Unified Interest Rate Model for European 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