DBRS Finalises Provisional Ratings Assigned to IM EVO Finance 1, Fondo de Titulización

DBRS Ratings Limited (DBRS) finalised the following provisional ratings previously assigned to the Notes issued by IM EVO Finance 1, Fondo de Titulización (the Issuer):

-- Series A 2017-01 rated A (high) (sf)
-- Series B 2017-01 rated BBB (sf)

The ratings on Series A 2017-01 (Series 2017-01, Class A) and Series B 2017-01 (Series 2017-01, Class B notes; together with Series 2017-01, Class A, the Rated Notes) address the timely payment of interest and the ultimate payment of principal on or before the Legal Maturity Date in September 2050.

The transaction represents the issuance of notes backed by a pool of EUR 393.1 million of consumer loan receivables granted by EVO Finance, E.F.C., S.A.U. (EVO Finance or the Originator) to individuals in Spain through a network of small- and medium-sized commercial establishments as well as large, nationwide retailers. The securitised portfolio will comprise receivables both with explicit and implicit interest rates, with the purchase price of the latter being equal to a discounted value, calculated by considering their internal rate of return.

The transaction envisages a two-year revolving period, with the option to extend for successive two-year periods up to six years before the Legal Maturity Date. During the revolving period, the Issuer has the option to purchase new receivables up to a maximum aggregate outstanding balance of EUR 700.0 million. The acquisition of additional receivables will be funded through any of the following: (1) the principal collections generated by the securitised portfolio; (2) the issuance of further notes; or (3) the increase of the outstanding balance of the existing notes. Both the second and third funding sources are subject to certain conditions precedent, and the aggregate balance of the outstanding notes cannot exceed EUR 500.0 million. Additionally, a credit line will be available to fund the reserve fund up to its required level and pay any portfolio purchase price not covered by the issuance of notes.

The ratings are based on DBRS’s review of the following analytical considerations:

-- Transaction capital structure and form and sufficiency of available credit enhancement (CE), enabling the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested.
-- Relevant CE in the form of subordination and a reserve fund.
-- CE levels are sufficient to support the expected credit net loss assumptions projected under various stress scenarios at A (high) (sf) and BBB (sf) standards for Series 2017-01, Class A and Series 2017-01, Class B notes, respectively.
-- EVO Finance’s capabilities with regard to originations, underwriting, servicing, their financial strength and trading history.
-- The credit quality of the collateral and the servicer’s ability to perform collection activities on the collateral.
-- The operational risk review conducted on EVO Finance by DBRS.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The sovereign rating of the Kingdom of Spain, which DBRS currently rates at A (low).
-- The legal structure and presence of legal opinions addressing the true sale of assets to the Issuer and its consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

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. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

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” at:
http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for these ratings include performance and portfolio data relating to the consumer loans originated by EVO Finance. In particular, DBRS received static default data and origination balances from Q1 2008 up to Q4 2016, and dynamic portfolio balances, including delinquencies and prepayments. Non-performing loans’ sales information from September 2007 to December 2016 was also provided, together with loan-level data for the proposed pool as at 10 October 2017. All data was sourced by EVO Finance through the transaction Management Company, InterMoney Titulización S.G.F.T., S.A.

DBRS did 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 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 7 November 2017, when DBRS assigned provisional ratings to 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 rating (the “Base Case”):

-- Probability of Default (PD) Rates Used: PD Rate of 4.1% with a 25% and 50% increase on the base case PD.
-- Recovery Rate Used: 20.7%.
-- Loss Given Default (LGD) Used: Expected LGD of 79.3% with a 25% and 50% increase in the LGD.

DBRS concludes that for Series 2017-01, Class A:
-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a confirmation of the Series 2017-01, Class A notes rating at A (high) (sf).
-- A hypothetical increase of the base case PD by 50% or a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a confirmation of the Series 2017-01, Class A notes rating at A (high) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class A notes to A (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class A notes to A (low) (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class A notes to A (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class A notes to A (low) (sf).

DBRS concludes that for Series 2017-01, Class B:
-- A hypothetical increase of the base case PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes to BB (sf).
-- A hypothetical increase of the base case PD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes to B (high) (sf).
-- A hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes to BB (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes to B (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes below B (sf).
-- A hypothetical increase of the base case PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes to B (high) (sf).
-- A hypothetical increase of the base case PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to a downgrade of the Series 2017-01, Class B notes below B (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: Joana Seara da Costa, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 7 November 2017

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
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 European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- 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