DBRS Confirms Rating on Notes Issued by Weser Funding S.A. - Compartment No. 1

DBRS Ratings Limited (DBRS) confirmed its rating on the Compartment No.1 Notes (the Senior Notes) issued by Weser Funding S.A. (the Issuer) at A (low) (sf).

The rating addresses the timely payment of interest and the ultimate repayment of principal payable on or before the Final Maturity Date in December 2028. The confirmation follows an annual review of the transaction and is based on the following analytical considerations:

-- Portfolio performance, in terms of level of delinquencies and defaults, as of March 2018;
-- The fact that no Early Amortisation Event has occurred; and
-- The current available credit enhancement (CE) to the Senior Notes to cover the expected losses assumed in line with the A (low) (sf) rating level.

The transaction is a revolving cash securitisation backed by a portfolio of euro-denominated loans to large corporates and small and medium-sized enterprises located in Germany and other countries in Europe. The loans were originated by Bremer Kreditbank AG (BKB).

The transaction envisaged an initial three-year revolving period, scheduled to end in June 2020, during which time BKB has the daily option to sell new loans at par to the Issuer as long as BKB complies with the eligibility and replenishment criteria. The revolving period will end prematurely if an Early Amortisation Event occurs, which could be triggered if the cumulative default rate or cumulative delinquency rate exceeds 3% or 8% of the initial portfolio balance, respectively. A shortfall of more than EUR 1 million in the replenishment fund would also lead to an Early Amortisation Event.

PORTFOLIO PERFORMANCE
As of the 12 March 2018 payment date, the overall portfolio consisted of 797 loans drawing under 179 loans with an aggregate principal balance of EUR 400 million. The portfolio is performing within DBRS’s expectations. As of the March payment date, there were no loans in arrears for more than 90 days or defaulted loans.

CREDIT ENHANCEMENT
As of March 2018, the CE to the Senior Notes was 22.5%. The CE of the Senior Notes is provided by the subordinated notes. The transaction also benefits from a Cash Reserve (CR) fund that has been funded at closing at EUR 2 million (0.5% of the initial portfolio balance). It is subject to a floor of the higher of EUR 1.5 million and 0.5% of the outstanding portfolio balance. The CR is available to cover shortfalls in senior expenses and interest on the Senior Notes during the life of the transaction. Once the outstanding portfolio balance has been reduced to zero, the CR is released through the waterfall and available to pay down principal on notes.

Societe Generale S.A. – Frankfurt Branch holds the Account Bank for the transaction. The DBRS private rating of Societe Generale S.A. – Frankfurt Branch is consistent with the Minimum Institution Rating given the rating assigned to the Senior 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 to the rating is: “Rating CLOs Backed by Loans to European SMEs.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of 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 continues to be based on the worst-case replenishment criteria set forth in the transaction legal documents.

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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for these ratings include reports provided by BKB, and loan-level data from the European DataWarehouse GmbH.

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

At the time of the initial rating, DBRS was not 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 this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This is the first rating action since the initial rating date on 11 May 2017 when DBRS assigned an A (low) (sf) rating to the Senior Notes.

The lead analyst responsibilities for this transaction have been transferred to Francesco Amato.

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: base case PD of 2.1%, a 10% increase of the base case and a 20% increase of the base case PD.
-- Recovery Rates Used: base case recovery rates of 25.3% at the A (low) (sf) stress level for the Senior Notes, a 10% and 20% decrease in the base case recovery rates. 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 lead to a downgrade of the Senior Notes to BBB (high) (sf). A scenario combining both an increase in the base case PD by 10% and a decrease in the base case recovery rate by 10%, ceteris paribus, would also lead to a downgrade of the Senior Notes to BBB (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 and US regulations only.

Lead Analyst: Francesco Amato, Financial Analyst
Rating Committee Chair: Vito Natale, Senior Vice President
Initial Rating Date: 11 May 2017

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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
-- Rating CLOs Backed by Loans to European SMEs
-- Rating CLOs and CDOs of Large Corporate Credit
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.